Thursday, September 29, 2016, AM | Leave Comment
Buying your dream vehicle is often a momentous and exciting decision. It can also be a financially daunting one.
There are a variety of ways to go about financing a new car, and it can help to know your options long before you begin the search for your dream car.
Getting a car loan through a dealership is the classic approach to buying a car, and it is probably what the vast majority of people do.
That said, it is not necessarily the best way to finance. Car sales people have all sorts of tricks up their sleeves when providing customers loans. They may offer no money down or very low monthly payments. They also tend to focus heavily on the monthly payment rather than the important information, which is how much the total loan costs.
It is not unusual for dealerships to pad their pockets with extras and fees that are quietly included in a financing offer. Most customers never notice these extra costs because they never look past the surface of the loan.
It is very important to keep in mind that most dealer incentives, such as no money down or very low monthly payments, are not in any way good deals. Sure, they make it easier to get the car, but the customer ends up paying an absolute premium price over the course of the loan.
Enticing loan offers can easily end up costing thousands of extra dollars in interest. Remember that car salespeople almost always get bonuses or commissions based on the financing they sell, so they have every incentive to give you a plan that nets them the most money over the course of the loan and is the worst deal for you.
If you do go this financing route at your local St. George Kia dealership, make sure that you still provide a hefty down payment of 20 percent or more and choose the shortest term and highest monthly payment you can reasonably afford. This makes the car cheaper in the long run.
Most banks and credit unions will offer personal car loans to customers. In general, these loans are better offers than anything offered by a dealership. The less obvious advantage is that you can work with loan specialists who are removed from the car sales process and aren’t going to have as many incentives to up sell you.
The upside to these loans is that they will have no hidden fees and lower interest rates. The downside to these loans is that they can be much more difficult to get.
You will probably need good or excellent credit, and you may not have as many options when it comes to negotiating a low monthly payment.
You can skip the loan process altogether and choose to pay in cash for a new car.
This used to be the norm, especially for older or better-established customers. There are both ups and down to choosing this method, and it is not necessarily your best choice.
A dealer may actually have less incentive to give you a good deal when you offer to pay in cash. The trick to avoiding this is to leave open the option of financing until the price is set and then declare you are paying in cash.
The other big consideration is if you may need the money for something else. It can be risky to totally deplete your savings and money reserves by giving a full cash payment.
Sometimes paying a few hundred dollars in interest can be preferable to having no reserve money available for emergencies or other needs.
Keep in mind that credit card interest is much higher, so it is never a good idea to deplete your money on a car purchase and then start using more expensive credit for things you end up needing.
Money From Other Investments
If you have other investments or retirement accounts, taking money from them to finance a car is an option.
It is squarely last on the list because it tends to be an overall costly choice. The vast majority of investment accounts have fees and taxes associated with drawing money out of them.
This is often higher than a loan interest rate would be. It is important to crunch the numbers on these losses and figure out whether or not they are a good deal compared to just a regular loan.
With a full understanding of the finance process and options, you can make the best deal for your circumstances.
Car buying is not a one-size-fits-all scenario. It is most important to consider all the options and your full financial budget, look past the monthly payment to the real details and don’t fall for any expensive dealership gimmicks.
Armed with this knowledge, you can buy your dream car and afford it comfortably.
Meghan Belnap is a freelance writer who enjoys spending time with her family. She also enjoys being in the outdoors and exploring new opportunities whenever they arise. Meghan also enjoys researching new topics that help to expand her horizons. You can often find her buried in a good book or out looking for an adventure. You can connect with her on Facebook and Twitter.