| 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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