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Used Car Financing
Used Car Financing - New Car Financing
Picking your next car may be an emotional experience, but picking the right way to finance that car should be a well thought out decision.
Yes, you've found the new or used car that makes your heart race by 120 beats per minute. Now the only one thing stands between you and the car of your dreams is setting up the financing.
Of course, you'd like to pay the full price in cash without blinking and eye. But the fact is that seven out of ten car and truck buyers have to finance their next car.
If you Understand the basics of each car financing option you're well on your way to choosing the automobile financing strategy that best suits your situation. Here is an overview of auto financing options that may be available to you.
Car Financing from Lending Institutions
You can get car financing from a bank, credit union, or other lending institution. The lending institution will use the car you purchase as collateral for the auto loan. This means that the lender can repossess your car if you default on the car loan. Car loans are a popular car financing option because they generally offer reasonable interest rates and are relatively easy to get.
Two factors are likely to affect the total cost of the car loan.
- Term of the loan. Generally, the longer the term of the loan, the lower your monthly payments will be. But you'll end up paying more towards interest and this will increase the total cost of the auto loan. Also, a long term load may leave you owing more than the car is worth when you want to trade it in. This is called being "upside down".
To avoid being "upside down" get a short-term loan. Your monthly installment will be higher, but you'll be paying less money over all.
- Credit rating. Creditors with less-than-stellar credit history are usually charged a higher interest rate because of the elevated credit risk.
Dealer Financing
You probably can get dealer financing fairly easily. Most dealerships have relationships with numerous lending institutions, so they can arrange car loans even for car buyers with blemished credit histories. Some car companies have their own subsidiary that finances their cars.
To compete with traditional bank loans, many dealerships offer zero percent or very low interest on dealer loans. However, such loans are only available to car buyers with good credit ratings.
Consumer experts advise car buyers to get pre-approved on an auto loan from a bank or credit union before approaching the dealership for possible financing. This way you'll have the knowledge you need to compare what the dealer is offering with what you can get at you bank or credit union.
Home Equity Loans and Home Equity Lines of Credit
If you own a home and have accumulated substantial equity, you can consider getting a home equity loan or a home equity line of credit. Home equity loans can have a fixed or an adjustable interest rate that you repay over a predetermined period. Home equity lines of credit are open-ended, adjustable-rate revolving loans with a maximum credit limit based on the equity of your home. Home equity loans tend to have lower interest rates than credit cards and other types of personal loans.
Interest payments on home equity loans may also be tax-deductible up to a certain extent. But, be careful, because both home equity loans and home equity lines of credit use your home as collateral. This means that you could lose your home if you cannot make the loan payments.
Credit Cards
Your credit card, like a home equity line of credit, is a revolving account. You can borrow money when you need to and make regular payments to repay the loan.
Credit cards differ in that the loans the bank makes are unsecured. That is, only your past credit history give the bank confidence in your ability to replay. Because of this, the interest rates for credit cards are substantially higher than for home equity lines of credit.
Financing your auto purchase through credit cards could also leave you vulnerable to hefty penalty charges if you make a late payment or exceed your credit limit.
Resources
Here are two sources you can use to get auto loan quotes. Make sure to get several auto loan quotes so you can compare them to your dealer's auto loan package before you sign any paperwork.
To help you in your search for a good automobile, here is a free ebook about car buying tips. It's information you need to save money. Click to view or download.
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