So let’s say you’ve decided that a brand spankin’ new car is in your future, that the draw of shiny steel is just calling your name. Before you begin the process of buying a new car, you need to think about how you’re going to finance that new baby of yours. Because just like a real baby, you need to give some thought to how you’re going to afford this thing.
Fortunately, you have lots of options when it comes to financing, each with their own pros and cons. Take a minute to read through some of your financing options and become an educated buyer.
Financing from the Dealership
Most dealerships will offer you the option of financing your car through them, right on the spot. Sometimes you can even snag a 0% financing deal, but make sure you read the fine print – these deals tend to promote only a particular model vehicle.
Pros: Incredibly convenient, instant gratification for your inner child.
Cons: Because dealers make money off the interest rate, they have an incentive to jack the APR up during negotiations.
Financing from Banks
You’ve got a checking and savings account, so use that already established relationship to finance your new car. Your bank has a good snapshot of your spending habits (cringe), so they can judge you for buying those…I mean be a good judge of your ability to repay.
Pros: Banks are known for offering longer loan refunding periods to people who have borrowed from them.
Cons: Some bank loans can be front-loaded, they’re called front-end installment loans. You need to back up off those.
Financing from Credit Unions
Yes, you’ve driven past one of these in town, but unless you belong to one, you may not realize the benefit. You should do your homework, because credit unions can be a great option for financing.
Pros: Because they negotiate on behalf of a lot of customers, they can often get fantastic low rates for their members.
Cons: Credit unions tend to be stricter in their loan requirements.
Financing with Home Equity
Both a home equity loan and a home equity line of credit are available to use for financing a new car, if that makes sense for you. Be extra careful messing around with using your home as collateral, though. This is your dad speaking.
Pros: The interest rate on these kinds of loans is typically lower than on an auto loan.
Cons: The fear of putting your home on the line.
If you decide to buy a car with a stack of good ol’ fashioned bills in your hand, who could argue with that? But if you don’t have the cash money, maybe you have to borrow it from your parents/friends/Pilates instructor.
Pros: Immediate ownership! No monthly payments!
Cons: Beholden to your parents/friends/Pilates instructor for life.
Okay, maybe that last one was a bit of a joke. Unless you actually have friends like that, in which case, can we be friends?
Got a story of how you financed your new car? Please share with the class in the comments below so that we can all learn from your experiences.