You can choose from multiple options while financing a car. This can sometimes turn out to be very overwhelming for car buyers, especially if it’s the first time you’re buying a car. One easy way of dealing with this and making the process simpler is by understanding the basics.
While most potential buyers focus more on what kind of car they want, they forget to take into account that financing a car adds to its total cost. Why? Because while financing your vehicle via a loan, you end up paying for the cost of credit, the issuing cost, cost of interest, and more, in addition to the cost of your future car.
Once you decide which car you want to go ahead with, you must figure out how you’re going to pay for it. You can either pay for the vehicle in full and upfront, or you can finance it by taking out a loan or leasing it.
Financing with A Loan
When taking out an auto loan, there are three major factors you need to keep in mind:
– The total loan amount that you’ll be borrowing
– The annual percentage rate that you’ll be paying on the total amount
– The loan term, which is the time you have to pay back the entire loan amount plus interest
What most people don’t realize is that a loan for financing a used car will have a higher interest rate compared to a loan for a new car. It is a good idea for potential car owners to shop around for quotes from various lenders to find a loan that covers all their needs without it costing too much.
Financing with A Lease
When most people think about purchasing a car, their mind automatically goes to taking out a loan or self-financing. But what you may not realize is that leasing a car is also a very popular and practical way of financing.
While leasing, you only pay for using the car and not buying it. You also incur costs like the “money factor” which is very similar to a loan’s interest rate, issuance fees, and a security deposit.
Why do people prefer leasing over buying? Because you end up paying a lower monthly payment compared to what you would pay for buying the car. If you want to keep the vehicle at the end of your lease period, you can purchase it with a lease buyout!