There is a lot to do before you do to the dealership to get the latest car that you are too excited to buy. Put that checkbook away for a while and do some researches so that you get the best deal from the best auto financing company.
Most people do not realize that while shopping for a car they are actually shopping for financing as well. This is because buying a car in cash is next to impossible given today’s economic scenario, income potential as well the high price of cars.
Therefore, it is found through several surveys that most car purchases are made using a loan. In fact, the loan breakup is as follows:
- 85% for the new car purchases and
- 53% for used cars.
Another report of The Federal Reserve says that:
- Nearly 107 million Americans have car loans
- The average new car loan is a whopping $30,294.
Though these figures may not be of any importance to you. However, the math formula of ‘the real cost of a car = the purchase price + the finance charge’ will surely have a lot of importance.
The Finance Charge Factor
This means, the amount of your loan will not be the price of the car alone but it will also include the other charges, fees, and interests that you will also have to repay.
For example, if the price of the car you bought is $20,000 car and you pay an additional $4,000 more to finance it, you will need to repay $24,000. That means the actual price of your car becomes $24,000 and not $20,000!
This is where you need to do your shopping to find the best deal.
- Less the finance charge, lesser will be your loan amount and monthly payments.
- It will be far easier for you to repay the loan on time without any defaults.
Typically, in order to get a car loan, you will need to pay interest on your loan ranging anywhere from 4 to 9% which can come up to a significant amount in the end.
However, banks, financial institutions and other lenders such as Liberty Lending have relaxed their credit requirements in the past few years making it more affordable for the common people.
The Two Options
The fact that lending policies are now much more liberal than before may make you think that it is a good time to borrow money to buy your new car. However, the most important thing to consider is whether or not you can afford to take a loan.
Considering that you have a good credit score and a steady source of income, there is no reason for you not to get such a loan or repay it on time.
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Now the question is from whom you should get this loan. Typically there are two options for financing your car: Direct lending or dealership financing. For both, you will have to shop around to find the best ones.
- As for the direct lenders visit different banks and credit unions and try to get pre-approved for an auto loan.
- Then you must take your offer with you to the dealership to get your car.
Well, it may not be the loan you end up with, but it will surely be a very useful tool to negotiate the terms of the loan with the dealer.
Other Sources To Try Out
Remember, the dealer is not the only one that offers auto financing for cars. There are several other lenders available as well that will offer you with a variety of car loans.
Captive Finance Companies:
Several major auto manufacturers have their own financing unit. These captive finance companies at present account for 30% of all auto loans.
Typically, they offer tempting promotions such as 0% interest for a specific number of months, rebates and other incentives. However, these offers are typically reserved for customers having excellent credit.
These are the dealers that have a direct relationship with banks. They simply arrange for financing but do not issue or provide themselves. These guys primarily act as an intermediary between the customers and banks. They charge a small percentage from the customers for providing such benefits.
Buy Here Pay Here:
BHPH dealership loans are small in number amounting to only 6% of all car loans. These are also called as in-house car financing. Typically, BHPH dealers definitely win as they offer loans on very high interests, especially to the subprime borrowers. They are at a no loss situation as the loan is secured by the vehicle itself. If you cannot repay the loan, they will simply repossess the car, sell it again and collect another down payment!
The most traditional source for getting a loan, banks accounts for the major share of the number of auto loans and make up 33% of this market. However, the banks are now reluctant to make car loan since the Great Recession paving the way for the captive finance companies to enter the market and make the most of it. However, if you can get preapproved for a car loan, then there is no better reference point than the banks.
They make 21% of the auto loan market. The reason for this is that they are nonprofit institutions and therefore can offer loans at much lower rates than the banks sometimes 1.25% lower if not more. However, the catch is that all credit unions may not lend to any borrower who is not their members.
Not requiring any more explanation you can simply log in to any of such lending companies and get instant approval, or rejection, for a car loan. The good this about the online lenders is that they also offer loans to consumers having ‘bad’ credit.
However, be wary of the consumer finance companies that are known for shady business practices such as bating customers for high-interest loans and illegal repossessions. If you are a homeowner, taking out a home equity loan to pay for your car is a good option as it is low cost and tax-deductible.