Financing an automobile is an expensive and challenging adventure. You have to go an extra mile to cover the costs that stand on the way to your ride. There are, however, many ways you can use to source the finances you need to get over with the process.
When interest rates are so low, it’s likely that your savings will not be earning much in a bank or building society account. So rather than keeping your savings and borrowing at a higher rate of interest, you could use them to fund all or some of the cost of the car.
You can get a personal loan from a bank, building society or finance provider so long as your credit rating is good.
Make sure the loan is not secured against your home. Otherwise you will be putting your home at risk if you failed to keep up with repayments.
Hire purchase is a form of buying a car on finance and is paid in installments where payments are spread over 12-60 months and you usually (but not always) have to put down a 10% deposit. They are arranged by the car dealer and are often very competitive for new cars (less so for used cars). The loan is secured against the car, so you don’t own it until the last payment is made.
You can pay the dealer a fixed monthly amount for the use of a car, with servicing and maintenance included, as long as the mileage doesn’t exceed a specified limit. At the end of the agreement, you hand the car back. It never belongs to you.
Car loans are one among a number of ways you can use to finance your automobile purchase. When it comes to getting a loan to finance your car, you will have to be smart in negotiating a car loan with your lender(s).
This may sound simple enough but it can actually be difficult. One trick that is often used by car salesmen is to get you negotiating payments. You will be asked questions like: “How much are you looking to pay per month?” or “What do you want your payment to be?” Car salesmen love to negotiate payments as opposed to the actual price of the car. That’s because they want to set the price based on the maximum monthly payment that you are willing to pay. If you fall for this tactic, you will end up paying a whole lot more for your car. Negotiate the price, not car payments!
Dealers have come up with creative financing programs that will allow borrowers to lower their monthly payments. They do this by lengthening the number of years on the auto loan. Today, borrowers are allowed to finance a car for up to 7 years. This is absolutely ludicrous! A car is a depreciating asset and is losing value every year. The best loan term is 4 years or less.
Your credit rating will determine the interest rate that you get. Just because your credit is not tip-top does not mean that you have to take a loan with a ridiculously high interest rate. Individuals with good credit will get loans with single digit APRs. Individuals with average credit may get loans at 10% to 12%. Individuals with bad credit will be offered loans at 15% or higher. Many people with bad credit accept loans with interest rates as high as 24%. Never take a loan with exorbitant interest rates. No matter what your credit situation, it is never worth paying usurious interest rates just for the right to own a car.
Getting a loan to finance a car purchase can be tricky if you have a damaged credit. However, if you follow the right channel, you can still make to earn yourself a credit and be able to ride your dream car anyway. You can go for a prime or near prime auto loan, do good shopping for lenders as well as starting from close to home can be a good way out.
Keep in mind: Because car loans involve less money over a shorter period of time — and an auto is easier to repossess than a home — the same credit score that might have put you in a subprime mortgage loan could bring you a prime or near-prime auto loan. If you actually have good credit and apply for a subprime loan, it’s likely that you will get less favorable terms than you deserve.
Some lenders will see your tarnished history in a more positive light than others. “That’s where it becomes more important to shop around,” says Reed. But be careful if a lender or lot caters specifically to subprime consumers, he says. “Seeing places that are appealing specifically to subprime is a little bit of a warning flag.”
“Even if you don’t think you can get a loan, go to your bank, go to your credit union first,” says Van Alst. Apply at the bank where you have a checking account or your credit union. And see if your employer or insurance company offers auto financing.