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"Your Auto Loans, Auto Financing Options"

Understanding the basics of each auto financing choice is key to choosing the automobile financing strategy that best suits your position.

 
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by: Brennan Howe

You've found the car that makes your heart race by 120 beats per minute. Now only one thing stands between you and the car of your dreams: financing the buy. In a perfect world, you'd pay the total price in cash without blinking. But if you're comparable to the seven out of ten car and truck buyers who don't exist in a perfect world, chances are you'd be paying for your car by way of one of several financing schemes.

Understanding the basics of each car financing choice is key to choosing the automobile financing strategy that best suits your position. Here is an overview of auto financing options that may be obtainable to you.

Auto Loans from Lending Institutions

You can get a car loan from a bank, credit union, or other lending institutions. The car that you buy will serve as collateral for the auto loan. This means that the lender can repossess your automobile if you default on the car loan. Auto loans are a popular car financing option because they on average offer reasonable interest rates and are rather uncomplicated to get.

Two factors are likely to affect the total cost of the car loan. One is the term or duration of the loan. On average, the longer the term of the loan, the lower your monthly installment will be. But you'll end up paying additional towards interest and this will increase the total expenditure of the auto loan. If you can afford it, get a short-term loan. Your monthly installment will be higher, but you'll be paying less money over all. The second factor that may affect the total cost of your car loan is your credit rating. Creditors with less-than-stellar credit history are commonly charged a higher interest rate because of the elevated credit risk.

Dealer Financing

Like traditional auto loans, dealer financing is reasonably effortless to get. Most dealerships keep relationships with several lending institutions, so they can arrange car loans even for car buyers with blemished credit histories. To compete with standard bank loans, most dealerships offer zero percent or extremely low interest on dealer loans. Still, such loans are available to car buyers with stellar credit ratings. Customer experts advise car buyers to get pre-approved on an auto loan from a bank or credit union before approaching the dealership for possible financing. By getting loan pre-approval from another lending establishment, a car buyer gets the upper hand when bargaining for a lower rate on a dealer loan.

Home Equity Loans and Home Equity Lines of Credit

If you own a house and have accumulated considerable equity on your property, then you may consider getting a home equity loan or a home equity line of credit. Home equity loans are fixed or adjustable rate loans that you repay over a set time. Home equity lines of credit are open-ended, adjustable-rate revolving loans with a maximum credit limit based on the equity of your residence. Home equity loans incline to have lower interest rates than credit cards and other types of individual loans. Interest payments on home equity loans may also be tax-deductible up to a certain extent. Home equity loans and home equity lines of credit use your home as collateral, so be sure you are financially qualified of paying the monthly installments if you don't want run the risk of losing your home.

Credit Cards

A credit card advance or credit card draft from your credit card company can assist you drive your dream car home. Like home equity lines of credit, credit card advances or credit card drafts are revolving lines of credit with variable interest rates. To entice existing customers to avail themselves of credit card drafts, credit card companies forgo cash-advance fees, assure low rates during the initial term of the loan, or offer high credit limits. However, because credit card drafts are unsecured, they generally have higher interest rates than home equity loans, traditional auto loans or dealer loans. Financing your auto purchase through credit cards could also leave you vulnerable to hefty penalty charges if you make a late payment or surpass your credit limit.

 

 

 

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