When you are in the market to buy a new car, you have a few options. In the car business, there is a term called “financing.” This term generally means that a car dealership provides you with a loan to either buy or lease a vehicle. If you chose not to finance a car, it means that you would simply buy it outright with a single cash payment.
In This Post:
Financing a Car Through a Loan from the Dealership
It is possible to get a loan to finance a car through your bank. However, many car buyers prefer the convenience of being able to acquire a loan directly from the car dealership of their choice. It’s easy to get and merely requires walking into a dealership, selecting a car you wish to purchase, filling out a credit application and leaving with the new vehicle. It’s even possible to do that at night or on weekends when most banks and credit unions are closed, which makes it even more convenient.
In order to get a car loan, however, the dealership generally charges more. The specific amount depends on your credit. If you have great to excellent credit, your interest rate will most likely be competitive and you may be eligible for special programs that can lower your cost even further. On the flip side, if your credit is bad or if you don’t have any, you can expect the dealership to charge you a higher interest rate. This is because you are viewed as being a bad risk for a loan.
How to Finance a New Car
When the salesperson asks you how you wish to finance your new car, you have three options. They include the following:
- You choose to buy the vehicle
- You choose to lease the vehicle
- You choose to pay cash for the vehicle
In general, you have to consider the benefits of leasing vs buying a car. If you have the financial means to buy a vehicle, that would be your best option. Paying for it outright in cash may even be better because it means the car is yours as soon as you hand over the money. However, if you don’t have the best financial situation, you might want to consider leasing. It’s important to know the details of each of these financing options:
Buying a Car
If you choose to buy a car and want a loan from the dealership to help you finance it, you have to fill out a credit application. Your credit score is the basis for the loan based on factors like the negotiated price of the vehicle and other expenses, including taxes, licensing and title fees. You will be required to choose a term for the loan or how long you want to take to pay off the car. Most car loans have a term of three to five years with 36 to 60 monthly payments.
Leasing a Car
If you decide to lease a car, you also must fill out a credit application. Depending on your credit score and the length of your lease, the dealership will find a lease for you. This is done using a computer program to find a lease through a bank. Generally, the best option for the term of a lease is three years. You also have to choose how much to pay upfront.
Paying Cash for the Car
This option is self-explanatory: you simply pay with cash or a check for the vehicle after negotiating a price. You don’t have to worry about paying monthly installments or interest rates.
Buying, leasing and paying cash for a new car depends on your financial situation. You can decide which option for financing a new car is best for you by doing your homework and comparing each of these options.