Buying a car is a big financial commitment. There are a lot of things that you have to consider: are you going to buy the car outright? Are you going to explore different financing options? Are you prepared to handle its running costs?
In fact, aside from a home, it is probably the second most expensive thing you’ll own in life. Hence, it is crucial to learn the ins and outs of financing this purchase. By knowing the best and worst ways to finance a car, you will be able to hopefully avoid the most common mistakes that consumers make and drive home your dream car without any issue. Allow us to share with you what these are, together with other related tips in this short article.
The Best Ways
Let’s start with the best ways.
Get your credit score in order first.
Here’s the deal: you can consider personal loans for fair credit. Why? There are a couple of reasons. First, people with poor credit standing will most likely be happy enough to be considered in the first place. Hence, they will have a tendency to accept any deal even if it’s at a higher rate.
Second, it’s very easy to repossess a car if you can’t pay anyway. Their losses are going to be mitigated (if there are any at all!).
This is the reason why we urge you to boost your credit score first before applying for a car loan. In this way, you will be able to request and actually have a better chance of scoring the lowest rate possible.
Save up for a down payment, or trade-in.
It’s a simple logic. If you pay more money upfront as down payment, the less your remaining balance will be and the lower interest rates you will get to enjoy. Don’t have enough money for a downpayment? Don’t worry, you can opt to trade-in your old car instead. The catch, though, is you will get less of the actual car’s selling price from an agent compared to if you have simply sold the car yourself.
We recommend considering your options carefully, especially if you don’t really have the time and resources to sell your car yourself.
Get an idea of what you need to spend.
With your credit score in line and your down payment ready, it’s now time to do your research and get an idea on the expenses that you can expect. In this way, you’ll know when you’re actually getting a better (or unfortunately, worse) rate.
Understand taxes and fees.
When buying a car, it’s important to understand that you’re not just going to pay for the unit but there are also a lot of other miscellaneous fees involved like sales taxes, documentation fees, and registration fees.
While it can be tempting to just roll over these fees and get them included in your car loan, we still recommend paying for them in cash instead. In this way, you won’t burden your loan anymore with other expenses, increasing its rate but not the actual value of your car.
Use personal loans.
So, are you ready to take the plunge and make the purchase? We have been discussing financing your car through a car loan so far, but have you considered other forms of loan? Applying for a personal loan, for instance, is also a viable option. Here are its pros and cons:
● It is very easy to apply for a personal loan. In fact, you can do so online.
● The application and approval process is faster compared to other types of loans.
● Most of all, if your personal loan will be enough to pay for the total cost of the car, you will already enjoy its full ownership even while still paying for the loan eliminating the risk of getting it repossessed. You can even sell your car without any issues if you encounter financial problems in the future.
● Your monthly payments may be higher compared to other forms of loans.
● And since you’ll have full ownership of your car, you will have to handle all the maintenance costs yourself.
But even with the cons, we bet we can all agree on one thing: it is still a great idea to consider getting a personal loan.
In any case, now that we have talked about the best ways, what about the worst ways of financing a car?
The Worst Ways
There are two: de-investing in your home and tapping into your retirement fund. Both are significantly more important than getting a car. Owning a car will greatly improve the quality of your life, that’s true, but not owning your own property and not having a retirement fund, such as your 401(k) to fall back on might greatly affect your financial future.
In the end, what’s important is to do your research beforehand and learn as much as you can before signing anything. Being informed will take you far and will lessen any possible risks. Good luck!
written by Loanstart.com