If you’re going to buy a car outright at the dealership, that makes things less complicated. You simply exchange the vehicle for the asking price and drive it away. However, many individuals don’t use that method. Instead, they need to look into financing.
You might look for a buy-here pay-here dealership. This is one where the dealership itself extends credit to someone who is looking to buy. This is also sometimes referred to as dealer financing.
That’s not the only way to go, though. We’ll discuss some other possibilities in the following article.
Direct Lending
Direct lending is the other thing you can do if you want to finance the purchase of a vehicle. If you do direct lending, then you will likely use an entity like a bank or credit union. These are credible entities that are not likely to use predatory lending practices.
The reason why many people like to use direct lending from a credit union or bank over dealership financing is because these types of lending entities will usually give you a better interest rate than a dealership will. That is not true 100% of the time. However, you will often find that if you shop around at some banks and credit unions before signing anything at a dealership, you can probably get more favorable lending terms.
Secured Loans
In some instances, you can approach a lending entity about getting a secured loan. With a secured loan, you must put something up as collateral.
In most cases, it is the vehicle itself that is used as collateral, but you might use something else. Any time you get a secured loan, though, you are liable to get a better interest rate.
Consider the Total Monthly Cost
When getting a car financed, no matter what lending entity you are using, you should consider the total number that you need to come up with every month. There’s an unofficial rule that many individuals use when they’re financing a vehicle. Your total monthly cost, including car payment, maintenance, gas, and insurance should not exceed 10% of your monthly income.
If you don’t have a steady monthly income, this can be more difficult to calculate. Still, this is not a bad rule of thumb to try to follow.
Your Credit Score
Your credit score usually matters if you are trying to get financing for a car. The higher it is, the more lending entities are going to be willing to do business with you.
This is not to say that you can’t usually find a lender even if your credit is not so great. However, the entities that are more willing to lend you money might engage in predatory practices, so you need to watch out for that.
Look at all available options when you’re getting ready to finance a car. Choose the one that is best for you. Remember that you’re presumably going to live with the consequences of this decision going forward, so do your research before signing anything.
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