Buying a car is a significant purchase and one you need to do correctly. After all, it’s a depreciating asset, meaning it decreases in value over time, and the costs associated with it certainly don’t end when you sign the papers. From running, maintenance to insurance costs, you’re likely looking to spend thousands of dollars every year to keep your car in good shape.
While securing a good deal on the purchase price of a car is vital, another thing you need to consider is how you’re going to pay for it. With that said, here are some of the smartest ways to finance your car.
Review Credit Scores Before Going to a Dealership
Unless you’re going to a no-credit-check car dealer, where you can get car loans on any vehicle, regardless if you have bad or no credit, you’re going to need to review your credit score before going into a dealership. Your credit scores can impact the type of car loan you can get from different lenders, and the better it is, the better the car loan agreements and higher amount.
Check Out Your Cash/Savings
If you’re able to pay for the entire cost of a car with the money you’ve saved over the years, then, by all means, go all out. After all, with savings rates being as derisory as they are right now, there’s little to be gained from letting your cash sit idle. However, ensure that making this purchase won’t eat into your savings buffers, risking you to go short when it comes to covering other life expenses.
Hire Purchase
This financing strategy is a popular choice when purchasing new cars. It’s where you need to place a deposit, around 10% of the purchase price, and pay it off over installments over a fixed term. Hire purchase is an effectively secured loan against any vehicle, boasting competitive rates, albeit only for long-term agreements. The only downside to this is that you don’t technically own the car until you complete all your payments.
Keep Loan Terms Short
The shorter your loan terms, the higher the repayments. You should aim for this since the longer it takes you to pay for your car loans, the more interest you need to pay. Although it can be tempting to stretch out your loan repayments for an extended period to make your monthly repayment fees cheaper, you’re ultimately paying more interest in a depreciating asset. So, it’s best to keep loan terms short.
Consider Getting a Personal Loan
Getting personal loans is one of the cheapest ways to finance your cars, provided you have a good credit history. Most car buyers make the mistake of paying for their vehicles using credit cards or going with the dealer’s finance plan, as both of these typically come with exorbitantly high-interest rates. When compared to these, personal loans are significantly better. Just make sure you’re working with a credible lender.
Personal Lease
Setting up lease agreements is straightforward: you pay set installments every month for a fixed period, typically three years or so, including maintenance and servicing costs. That means you don’t need to worry about depreciation, and it lets you know exactly how much of your monthly budget you can allocate. However, there’s a downside to this option, and that is you won’t own the car by the end of the leasing term.
Compare Dealer Finances Against Rates
Because of the excitement of purchasing a new car, many consumers forget one small and crucial detail, how they’re going to pay for their fresh set of wheels. Unless you have thousands of dollars lying around, you have two options, getting the dealer to finance it or get a car loan from lenders. Getting the actual car dealership to finance your car or “dealer finance” is when they contact their bank and lending partners to arrange a suitable loan for the vehicle, leaving them to make the arrangements while all you need to do is choose the best one for you.
Your other choice is applying for a car loan from private lenders. You can make the loan arrangements yourself and use the money to buy the car from the dealership. Although dealer finance may seem like the best choice since all you need to do is choose and sign some paperwork, dealerships often add high-interest rates to pocket a profit.
Besides a house, a car is one of the most costly things anyone can purchase, so determining how to finance it is crucial. So, if you’re searching for a new car, don’t wait until you’re signing paperwork before deciding how you’re going to pay for it by familiarizing yourself with the seven strategies mentioned—financing your car the smart way.