Finally, you have found your dream car and can’t wait to drive it around the city, but there’s only one thing that has crossed your mind while staring at it: how can you finance the car purchase.
Nowadays, there’s a bigger chance that you’d be paying for your car through one of several financing schemes.
And understanding the basics of each car financing option is key to choosing the car financing strategy. Here’s some overview of car financing options that may be available to you.
Car Loans from Lending Institutions
You can get a car loan from a bank, credit union, or other online loan lending companies. The car that you purchase will serve as collateral for the auto loan. This means that the lender can repossess your vehicle if you default on the car loan. Car loans are a popular car financing option because they generally offer reasonable interest rates and are relatively easy to get.
Like the traditional car loans, dealer financing is reasonably easy to get. Most dealerships have relationships with numerous lending institutions, so they can arrange car loans even for car buyers with blemished credit histories. To compete with traditional bank loans, many dealerships offer zero percent or very low interest on dealer loans. However, such loans are available to car buyers with stellar credit ratings. Consumer experts advise car buyers to get pre-approved for an auto loan from a bank or credit union before approaching the dealership for possible financing. By getting loan pre-approval from another lending institution, 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 home and have accumulated substantial 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 predetermined period. Home equity lines of credit are open-ended, adjustable-rate revolving loans with a maximum credit limit based on the equity of your home.
Home equity loans tend to have lower interest rates than credit cards and other types of personal 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 make sure you are financially capable of paying the monthly installments if you don’t want to run the risk of losing your home.
A credit card advance or credit card draft from your credit card company can help 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 waive cash-advance fees, guarantee low rates during the initial period 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 exceed your credit limit.