Getting a car for your sixteenth birthday may be the best gift ever, but buying a car can be a tedious and difficult process. For most people, buying a car isn’t a simple decision and, aside from a house, it’s probably the most expensive thing a family will ever buy. According to CAR-Research XRM, choosing the right vehicle for the family’s needs and finances means considering a great number of variables. In most cases, people shopping for a new car don’t have the money to pay in cash and will pay for the car on a payment plan, either from the dealer or through a direct loan with a bank, finance company, or credit union. Keep reading to find out what you need to know about securing financing for your family vehicle.
Vehicle Financing Options
There are two options for financing a vehicle: dealership financing and direct lending.
When choosing vehicle financing through a dealership, the buyer simply enters into a contract with the dealer to repay the amount of the loan, plus interest, over a set period of time. This type of financing can be convenient, since you can take care of it right there on the day you sign the paperwork, and might grant you access to special deals or incentive programs.
Dealership financing isn’t without its drawbacks, though. It’s worth noting that even you sign a contract for financing through a dealership, it is common practice for that contract to be sold to a bank or finance company (the assignee), which then handles all account transactions and payments.
Direct Lending Advantages & Disadvantages
Direct lending, in contrast, is done by taking out a loan directly from the bank, finance company, or credit union. The payment works similarly, with the amount being paid over an agreed upon period of time along with interest and fees. Once the contract is drawn up with the bank, the loan can then be used to pay for the vehicle.
Most consumers choose to take out a loan directly from a bank, credit agency or lender. For those with good credit, this option often offers the best interest rates. Working directly with the bank can offer a number of benefits including security, familiarity with the lending agency, and the ability to compare and choose from a broad range of loan terms available from a number of institutions.
Advantages of Direct Lending
Choosing to finance a car purchase through a loan from a bank gives the person the ability to shop around for the best lenders. With a little bit of research, buyers can rule out loans with high interest rates, seek out institutions with a good reputation and ultimately find the best loan for their family’s needs. Banks also offer a number of additional services when issuing car loans, such as helping with mortgages or applying a home equity line of credit for the loan. Many banks even give pre-approved car loans so the person knows exactly what they can afford before they even set foot in the dealership to browse.
Direct Lending Drawbacks
There are, of course, some possible downsides to choosing a bank loan. Some banks aren’t particularly keen on making auto loans and may offer unfavorable interest rates to discourage individuals, or banks may not want to finance customers with whom they don’t already have a history. Furthermore, dealing with a third-party for the loan may not be as convenient as just dealing directly with the dealership, or there could be incentives offered by the dealership that make financing through them a better choice.
The best advice for securing financing for your family’s vehicle is to do your research. Make sure you’re familiar with all the financial jargon you might come across and read up on the options available to you. With a little bit of legwork in advance, you’ll be better prepared to secure financing for a family vehicle.
This article was contributed on behalf of CAR-Research XRM, a company that helps you do business. Check out their website today and see how they can help you!