The Basics Of Financing A New Or Used Vehicle
If replacing your car’s parts doesn’t look at promising a solution as it once did, it may be time to consider purchasing a new vehicle. Believe it or not, even though the credit markets have tightened considerably over the past year, automakers are willing to finance your purchase. It’s largely a matter of your credit score, the price of the vehicle, and the length of the loan. In this article, I’ll explain the fundamentals of auto financing. We’ll look at leasing, getting a loan from your bank (or credit union), and purchasing it outright.
Arranging A Leasing Agreement
Despite what many people think, most dealerships don’t have an in-house leasing operation. Instead, they function mostly as a broker for the deal. The dealer is connected to a network of banks and each institution will offer different terms for the arrangement. When you tell the salesperson that you’d like to lease a new vehicle, they’ll use the computer to “shop” the banks’ terms.
Before the salesperson can begin “shopping,” you’ll be asked how long you’d prefer to hold the lease (usually two or three years) and the amount of money you’d like to put down. If you’re interested in leasing, I recommend that you hold the car for three years rather than two. It’s more cost-effective. Also, most lease agreements will allow you to drive 12,000 miles. You’ll pay a fee for each mile over the allotment that you drive the car.
At the end of the lease contract, the vehicle will have a residual value. It’s completely up to you whether you’d prefer to buy the car or turn it in for another model.
Financing Through An Auto Loan
Most large dealers have a financing arm. For example, if you want to buy a new Envoy from General Motors, you can arrange to have it financed through their GMAC Automotive Financing subsidiary. If you prefer, you can get an auto loan from your bank. In most cases, your bank will offer a lower rate on the loan (thereby saving you money over the length of the contract), but that can depend upon your credit score.
Your monthly payment is going to depend upon a few factors. It will be influenced by the price that you end up negotiating for the car, the amount of money you use as a down payment, and the length of the contract.
Paying For It Outright
Paying outright means that you write a check for the price you’ve negotiated for the vehicle. Few people have the financial resources to buy a car without financing it. That said, when they do, the entire negotiation becomes transparent. The dealership can no longer build its profit inside the interest rate and monthly payments.
Few buyers fully appreciate the factors which influence how much they end up paying. When the time comes to purchase a new car, you’ll understand the framework of how auto financing works. And that’s the first step toward getting a great deal.
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