There are several options available to finance your vehicle . Every option has its own advantages and disadvantages . Based on your requirements you may choose one of these options which suits you best :
1. Direct Lending
In Direct Lending , financing can be done thorugh a loan directly from a bank, finance company, or credit union. In this preference , the banks or lender agrees to pay you the amount financed, over a period of time, plus a finance charge ( as per the fixed rate ) . Once you enter into a contract with a dealership to buy a vehicle, you use the loan from the direct lender to pay for the vehicle.
Direct lending may offer you the following features :
Comparisons :
You have the chance to shop around and ask several lenders directly about their credit terms before you agree to buy a specific vehicle.
Credit terms in advance :
By getting financing before you buy the vehicle, you will know your rate and other terms when you are shopping.
Advantages :
Competitive rates,
personal service,
no sales pitch for add-ons;
often can tell you if you're paying too much for a car;
often provide free life insurance or disability insurance with loans;
loans are usually simple interest loans (interest spread evenly throughout the term of the loan)
Disadvantages :
Not as convenient as dealership financing -- can't set it up at night or on the weekend
2. Dealership Financing
Another common type of vehicle financing is Dealership financing i.e. , financing through the dealership. You and a dealer enter into a contract where you buy a vehicle and agree to pay, over a period of time, the amount financed plus a finance charge. The dealer may retain the contract, but typically sells it to a bank, finance company or credit union — called an assignee — that services the account and collects your payments.
Dealership financing may offer you:
Convenience :
Dealers offer vehicles and financing in one location and may have extended hours, like evenings and weekends.
Multiple financing options :
The dealer’s relationships with a variety of banks and finance companies may mean it can offer you a range of financing choices.
Special programs :
Dealers sometimes offer manufacturer-sponsored, low-rate or incentive programs to buyers. The programs may be limited to certain vehicles or may have special requirements, like a larger down payment or shorter contract length (36 or 48 months). These programs might require a strong credit rating; check to see if you qualify.
Advantages :
Convenient,
fast,
sometimes competitive
Disadvantages :
High pressure, usually not competitive;
Be prepared for a big sales push on add-ons;
Loans are often front-loaded (payments are made up of more interest in the beginning of the loan than toward the end -- that's bad if you think you may be paying the loan off early.)
3.Other Online financial institution
Advantages :
Usually competitive rates, quick, easy
Disadvantages :
Not a personal service;
dealing with an unknown;
some scams to watch out for
4.Home equity loan:
Advantages :
You can deduct some of the interest from your taxes;
competitive rates
Disadvantages :
You're tying your car to your home (may be risky)
5.Family member or friend
Advantages :
Personal service, easy, sometimes flexible;
usually competitive rates
Disadvantages :
Could jeopardize a relationship
Tips before making a financing decision :
Shop around before you make a decision about buying or leasing. Disadvantages ider offers from different dealers and several sources of financing, including banks, credit unions, and finance companies. Comparison shopping is the best way to find both the vehicle and the finance or lease terms that best suit your needs.
Determining the Rate - The most important aspects of financing !!
The interest rate you get when financing a new or used car can vary quite a bit from the advertised rates you see on TV or read in the paper. Probably the biggest influence on your rate is your credit rating (see How Credit Scores Work to get the full story). Your credit history and credit score tell lenders a lot about your money habits and are designed to give them an idea of what their risk is if they loan you money. They often raise the interest rate if your loan is seen as high-risk.
Another thing that affects the rate you get is the length (term) of the loan. Typically, the shorter the loan, the lower the rate. Keep in mind that the shorter the term, the higher your payments will be.
Used cars will have higher rates than new cars. The newer the car, the lower the rate. (You may find an exception to this rule at some credit unions. Some give the same interest rate for new and used cars.)
Your geographic location can also be a factor in the rate you get. Your cousin may have gotten 7 percent on the other side of the country, but in your home town, 8.5 percent may be the lowest rate you can find.
While these are the usual things that affect the rate you get through a bank or other financial institution, financing through the dealership may or may not actually work this way. Find out why in the next section.
Tips to impress your girlfriend or a boyfriend..
Thanks !!
Sunny Kabra
