When shopping for a new car, financing can be one of your most confusing and frustrating hurdles. There are so many financing options that it can feel like an impossible maze to navigate. You may not know what is best for you or if you qualify for these programs.
However, with a little research and elbow grease, you will be driving off the lot in no time. The trickiest part is knowing what car financing options exist and which might work best for you. Here are five types of car financing that you should know and how they work.
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Personal Loan
Personal loans are a great way to go if you need financing for a car. Personal loans allow you to borrow a specific amount of money with flexible repayment terms. You can borrow the entire cost of your new car and finance it over a period of up to 7 years. This allows you to repay the loan in manageable monthly payments rather than having one lump sum at the end.
A personal loan is ideal for someone who has good credit and wants to spread out their payments over time rather than having them all due upfront. The interest rate on this type of loan is typically higher than others but will still be lower than what you would have to pay at a dealership.
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Lease
Leasing a car is another option that is becoming more popular. Leasing allows you to drive a brand-new car with lower monthly payments than financing, but you don’t technically own the car at the end of the lease. Instead, you’re simply paying for the use of it over some time. This can be great if you want to drive a new car every few years and not worry about maintenance or repairs.
A lease is probably best for someone who doesn’t want to make large upfront payments or doesn’t want to own the car in the long run. The downside is that leasing can often leave you paying way more than what your car is worth at the end of your lease due to inflated monthly payments.
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Hire Purchase
Hire Purchase is financing that lets you pay for your car over time. With this option, you make a down payment and then pay the balance of your car in monthly instalments. This type of financing is very similar to leasing.
The main difference is that a hire purchase agreement allows you to own your car once you have paid the full amount. This type of financing will also come with a fixed interest rate and payment schedule that you can plan around easily.
An auto car loan is probably the most common type of financing. This loan is backed by your car and is typically the longest term. An auto car loan has a period that lets you pay off interest over time, with the initial payments mostly for the principal. This loan usually has fixed interest rates over an extended period, making it easier to budget your monthly payments.
If you need to buy a new vehicle, an auto car loan can be a good choice because they can help you avoid the penalties and fees that come with buying a brand-new vehicle. It can also help you avoid paying dealer fees since they let you own your vehicle outright at the end of your loan period. However, an auto car loan may not be ideal if you are looking for lower monthly payments or have bad credit and cannot get approved for these loans as easily as other financing options.
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Cash Payment
Cash payment is a quick, easy way to pay for your car. Cash payments are also good if you have the cash to pay for your car. You can use cash to buy a car and avoid debt with a loan, so you don’t have to worry about paying interest on top of your vehicle’s original cost.
However, cash also has its drawbacks. You will be responsible for all costs upfront when you use cash to buy a vehicle. This means you will have to pay for the vehicle’s price, taxes, registration fees and any costs that come with transferring ownership of the vehicle from the seller to you.
By: Raymond James
About the Author:
Ray is a sought after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.
