How to Finance a Large Purchase Such As a New Car

Finance

When you are thinking about purchasing a new car you need to be conscious of the fact that as soon as you walk into a dealership, salespeople will surround you with the question of how you are going to pay for your new car.

Paying cash

It is advisable to let them know that you plan to pay in cash meaning that you are not interested in manufacturer or dealer financing. This will leave you in the leading position when it comes to negotiation on the price of the car you are looking at.

Tips to remember

Some tips you should remember about financing a new car include:

 

  • You’re usually better off getting financing for a new car from a financial institution, not the car dealership.

 

  • Monthly payment on your new car should not be over 20% of ‘disposable income’. This sum needs to cover not only your auto payment but also your auto insurance, fuel costs, and regular maintenance.

 

  • Long-term automobile loans will cost you a lot of interest over the long run. The ideal car loan term is anywhere from 3-5 years with the smaller loan term the better.

Telling the salesperson that you are not interested in any of their finance packages takes away the ability of the car salesman to pay the price with extra profit. This is known as ‘charging’ and if you are getting a loan from the dealership the price you pay will be much more than if you get a loan from another institution and paid the dealership cash for the car. Bypassing dealer financing also gives you the time to focus on features of the car you want.

Advantages

Some points that help in getting the best deal are having ‘perfect credit rating’ or the car you currently drive being used as a ‘trade’ replacing it with a newer model. In these situations dealer sponsored financing might end up being a good deal. The best deals for car loans are usually made at credit unions or banks.

Leasing

A good tip to remember is to keep away from the attraction of leasing. Leasing is mainly an extended car rental and you will never own the car. You will return the car at the end of the lease or buy the car from the dealer at a preset price that can be much higher than what you would pay for a similar used car.

Lease or loan

When you take out a loan to buy a car, you pay down the loan and then the car belongs to you free and clear. With a lease, you return the car at the end of the lease and if you don’t buy it, you will still have to pay for any damages.

Many leases

There are many people who do a lease. Some very smart and reputable people lease. The term of a lease is usually 3 years and most people who lease will then turn around and lease another new car. Leasing is really not the best way to have a car as you are always making some sort of payment for the lease. Leasing is used by large companies that have a car for each of their sales rep and in this case, it can be deducted on the company’s income tax.

If you are going to buy a new car use some of these tips that will help get the best financing on your auto deal.

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