Car Financing Options


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When you are planning to buy a new car, it would be pertinent to consider the financing options available. When your car dealer asks you about the means of financing your car, what he means is the source of your payment. To pay for your car, you may have it financed from the dealership, or lease it. You may also pay the entire cost of the car in one go through cash.

Other sources are also available to have your car financed; and these are banks, other financial institutions and credit unions. However, most of car buyers opt for dealership financing because of the convenience involved. It saves them a lot of time and inconvenience. You may just walk in, pick a car of your choice, fill in the application for credit, and drive home in your brand new car. As opposed to this, you may have to go through a cumbersome process to avail of finance from banks or other sources of finance.However, interest rates on dealership financing are relatively on the higher side to compensate for the services that they provide to the borrower. The interest rates vary from person to person depending upon the credit rating. People with sterling credit can enjoy credit at competitive rates and participate in other special programs. Bad credit cases are charged higher interest rates because of higher risk involved in such credits.

The options before you for purchasing your dream car are:

Outright payment
Car Lease
Financing

Outright Payment

When you are a cash buyer, you are in a better position to negotiate the price of the car with the dealer. The dealer too will be eager to receive money at one go, hence his tendency to give in at the negotiating table. Once the price is negotiated, you may write a check for that amount. The negotiation process is relatively simple with no issues like interest rate, down payment and installments to discuss.

You may think that not many people have that kind of money to buy a car. But that is far from true. You can arrange for finance from banks or other sources, get a check or bank draft from them and pay off the car dealer. The financiers will hold the car’s title. Once all the dues are met, the title is transferred back in your name.

Car Lease

You may decide to lease the car, if not interested in buying outright. You will have to fill in a credit application. The dealer then looks for banks and other finance companies interested in the lease arrangement. The lease will depend on your credit rating, and the duration of the lease. Banks offer leases on different terms and conditions.

From the viewpoint of the buyer, it is better to go for a lease period of three years and a lowest possible up front payment. You may opt for a ‘drive-off fees’ only. In a majority of cases, lease contracts are signed for a 12,000 miles a year driving limit. However, you may ask for higher mileage coverage if you drive more than this limit. Your monthly payments may go up, but you do save money ultimately.You may check your contract and see if it contains a ‘residual price’ clause, which lease contracts normally do. After having made all the payments on your lease, you can purchase the car for the ‘residual price’. It is best to negotiate on the residual price, which you can get lowered. In case you decide not to purchase the car and return it to the lease company, they may charge you for excessive wear and tear. If the car is in good condition, you will be returned the security deposit. You may even use the deposit to lease another car.

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