Borrowing Money to Buy a Car

May 22nd, 2009 admin Posted in Auto Loans | 1 Comment » 489 views

If you are planning on buying a car but is short on cash, know that there are a number of auto loan options that you can choose from. However, before you start shopping around for your car, it is recommended that you nail down your financing plan first. Many people go through dealer financing because at the onset, this appears more convenient. In the long run, though, buyers end up with more headaches as they hadn’t counted on certain tricks that dealers use to get their business.

Loan Choices

The first establishments that people usually go to for auto loans are banks and credit unions. Bank auto loan programs are popular because these usually offer attractive deals. Additionally, people feel more secure borrowing from banks as they are perceived to be more credible compared to most car dealers. Credit unions offer even lower interest rates than banks.

A home equity loan is another financing option that you can look at. Beware however, that you do not put undue risk on your home seeing as this is undoubtedly more important than a car.

If you are not squeamish about conducting financial transactions over the Internet, you can also choose to borrow from online lenders. This option is convenient for many reasons. Online lenders usually aggressively compete for your business by offering very friendly rates and contract terms, plus the transaction is conducted completely over the Internet so you don’t have to go out of your house. Most loans are usually given in a few days.

If all else fail, you can always borrow money from your relatives. Take note though that borrowing money from family can usually put a strain on your relationship so make sure you plan accordingly. Also, certain loans from family are taxable and it is important for you to make this known as this has cost implications to your relative.

Interest Rates and Payment Terms

After you have nailed down your financing strategy, it is also important to bone up on the interest rates and payment terms for auto-loans. Remember that borrowers are usually charged a higher interest rate for used cars than brand new ones. Also, when you buy a brand new car, you can usually get a longer payment term compared to the terms for used cars.

Other Tips

If you are going to take out an auto loan it is best to pay a downpayment of 20 percent or higher. The remaining 80 percent you can finance with the loan. While longer payment terms seem attractive to buyers, be aware that you may actually end up paying more in the long run. A lower downpayment doesn’t necessarily mean lower monthly payments or overall costs.

If you do choose to go for dealer financing, make sure to haggle on interest rates. It is helpful to decide ahead of time what you are willing to pay for before talking to your dealer. Car dealers usually talk customers into agreements that seem like a bargain, but what they actually do is charge higher for the actual cost of the car so that they still make a profit.