Jan 4, 2012

The Best Ways to Finance a Car

There are highly efficient ways that people can finance cars without overburdening themselves. Based on their credit and whether the car is new or used, they may be able to walk away with the best offer. Going to a dealer could be the worst provider of finances unless buyers have looked around to find the best car deal. Car buyers must understand the various types of car financing options available.

There are some tips buyers can follow to get the best kind of car financing. Many buyers will be better off getting financing from a financial institution instead of a dealer. The monthly car payment should not account for more than 20% of the buyer’s salary. This amount should consist of the car payment, insurance and gas expenses. Long-term car loans will result in heavy interest rates over the years so the best loan term will vary from 3 to 5 years.

Also, it may not be a good idea to lease a car. Leasing is just an extended rental for a vehicle. People who lease a car will need to return it when the lease ends or buy it at a dealership for a preset cost that may be higher than one for a similar car. People who use a loan can pay it down and keep the car. They will only make payments for fuel, insurance and repairs.

There are different types of financing options available for car buyers like manufacturer, traditional, subprime and dealership financing. Manufacturer financing can offer rates lower than traditional lenders which can be as low as zero percent. Sometimes terms and rates are shown on the website. Traditional financing is provided by local banks and credit unions that have various lending demands and limits. Many loans have terms of one to three years but some banks provide longer ones. Traditional lenders show their interest rates on their websites. A local bank may provide more incentives like discounts for having a checking account.

Subprime financing provides loans to buyers who have less-than-impressive credit. These banks do not provide competitive terms or rates but they have options for borrowers with bad credit. There may be local subprime lenders but it is also possible to use nationwide lenders. Some rates can be high as 30 percent based on the permitted rate in the state. Approval terms are usually brief and there could be more down payment rules that result in high payments every month.

Dealership financing has a range of lending choices. Applicants can submit their information online to a range of banks right away. Some dealers also cooperate with credit unions. Some interest rates can be negotiated with the dealership. Dealers can send in bank contracts so the purchase can occur in one place.

People who do not know about car financing should seek the services of a broker. It is even harder to get lending these days because creditors have stricter policies than before. Whichever route they take, they need to obtain the best deal after looking at all the financing options available.

William works with cars on a daily basis. He writes for a company who buys cars and offers junk car removal for free.

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