Buying a new car is a huge decision. It’s probably one of the most expensive purchases you’ll make in your life outside of buying property. And whether you’re looking for a vehicle for work, the school run, or just because you need a new one and you deserve a great car, the one thing every car buyer has in common is how they pay for it.
There are, as you know, many choices for you when it comes to your next car purchase. But what is right for you? That’s a decision only you can make, but this post is going to dive into a few of your options so you can make a more informed decision.
Banks or Credit Unions
The most practical and popular route for many buyers is a loan from their bank or credit union. It’s simple: You borrow the money, you make your repayments, the APR is fixed for the duration of the lending agreement, and you own the car once you have made all the payments.
Banks can offer you a faster direct line of credit for a loan, and this can be the perfect route for those who need a loan quickly. The rates might be higher in some cases (your credit score will also dictate the APR offered and even your chances of being accepted), but for convenience, they can be a great way to make the process fast and simple.
Credit unions, on the other hand, can offer more preferable rates for their auto financing however, you will need to join first. And because they’re member-owned, you will find them more ideal for people with less-than-perfect credit scores, although you might need to build up some positive history, meaning you can’t just open an account and expect to be approved for an auto loan.
Remember, whatever option you choose from, get preapproval first before walking into the dealership, so you know exactly how much money you have to spend, as it will give you leverage and stop them from trying to oversell or hook you into more expensive credit options.
Dealer or Manufacturing Financing
Anyone who has bought a car has heard the in-house pitch “we can handle this for you”, and for dealers, those who take up the offer can be the perfect customer.
And while there’s absolutely nothing wrong with this approach. But you do need to know exactly what you’re signing for before committing to the purchase. This is because dealers often work as middlemen for the lenders and have been known to mark up your rate, meaning you pay more than you should. In some cases, dealers can push this considerably, and while there is a new rule coming into force to stop this predatory practice, it’s not legal yet. So be aware that this can happen, know what to expect and you can make better decisions on where to get your credit from.
Leasing
Leasing is simply renting your car for a long time. You will probably pay less each month, but you don’t own the car when you’re done. This is a good option for those who don’t need a full-time car or don’t drive many miles and need it more for convenience than anything else.
However, there are limits. There will be mileage limits you need to keep to or you’ll have fees added, you need to be mindful of the condition – one to many parking lot dings and again more fees. But in some states, you might only pay sales tax on the monthly payment, not the full price of the car, making a more affordable choice if you don’t mind not owning the car outright or building equity.
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