Auto Financing Options

Before you find your new or used car, you should definitely know how you intend to pay for it. If you’re reading this article, you probably don’t have the cash on hand to just buy your car outright. In general, there are three main options:  financing through the dealer, financing through your own credit union or bank, or leasing.

Use the dealer’s financing. This is usually the easiest option and requires the least amount of work. Most large dealerships have an in-house finance representative that can provide you with some options on helping you finance the car. They may have relationships with a few select banks or finance companies. If you have good credit, you’ll be in a much better position to get a loan at good terms, wherever you decide to get the loan from. But beware, if you don’t have stellar credit, you may end up with a costly loan if you let the dealer do the shopping for you.

Don’t focus exclusively on the monthly payment! Understand that extending the terms of your loan (example from 48 months to 66 months) will result in a lower monthly payment, but will cost you more in interest charges over the life of the loan.

Consider leasing instead of buying. You’ll still go through the normal credit application and the dealer will again shop around for you based on your situations. How long do you want the lease for? How many miles do you typically drive every year? Leasing often provides the lowest monthly payment, but be careful of exceeding the miles allowed in your lease. When you return the car, you may have to pay for the additional miles and any additional wear and tear. This extra cost could come out of your security deposit that you put down at the onset of the lease.

Find your own financing. This is often the best route to go because you can go through a lender of your choosing. You can fill out a credit application with your own lender (banks, credit unions) and see how much they are willing to lend you for the vehicle that you have in mind. Once you have a figure, you can tell the car dealer what your limit is and use that to help you negotiate.

Good credit is key! In order to qualify for a car loan or lease at the best possible interest rate, you need to have an excellent credit score. The lower the score, the higher your interest rate will be which results in a higher monthly payment and a higher total (principle + interest) cost of the vehicle.