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Different Car Financing Alternatives You Need To Know About



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Thinking about your dream car can be pretty exciting until you realize the cost you need for purchase.

It can be quite challenging to find the right car that will both suit your needs and resources.

One way or another, you will have to finance it.

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Financing a vehicle can be expensive. But with the right financing option, you can save a lot of money. The key is to take a look at every possible alternative and choose the one that will work best for you.

It is essential to note that car financing can be one of the most crucial financial decisions you will ever have to make. Thus, equipping yourself with the following various car financing alternatives may lead you to the best possible outcome. 

Paying In Cash

It has been an article of faith that the cheapest way to finance a car is by paying cash. This way, you can keep away with the burden of monthly payments. Besides that, you can save the money that was supposed to be used to pay the interest rates. 

However, it is only applicable if you have the money to pay the car in cash and the funds to cover other major purchases or unexpected car costs. Otherwise, it may not be an excellent idea to buy the car by pulling out money from your personal till. 

While paying cash can bring several benefits, it would help if you also consider its downsides. One is losing the interest the amount of cash would have earned. If you think it can only cause financial difficulties in the future, considering other options may be more practical.

Financing A Car With A Loan

If paying cash to buy a new car isn't in the realm of possibility, you can opt to finance it over time with a loan.

Since not all types of loans may work well with you, there are three significant factors that you need to consider: the loan amount, annual percentage rate, and loan term.  

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In a recent study at Credit Knocks, we found that *48% of clients who used a credit repair company got a credit score increase of 100+ points.

Consultation is quick, easy, and free.

The following are some of the options you can apply for if you need to take out a loan when purchasing a car.

Auto Loan

Auto loans are typically designed as installment loans, which means that you will pay it back in a series of fixed payments. The term for an auto loan usually lasts 36 months to 60 months long. 

Keep in mind that if the loan term is longer, the greater the amount of interest and the overall loan costs will be. However, there will be lower monthly payments for a long-term loan. It's up to you which loan term works better on you. 

With an auto loan, the vehicle being purchased serves as collateral. Thus, if you are unable to pay back the loan, the lender can retake possession of the vehicle. 

Quick Tip:

Get pre-approved for a auto loan online before you go shopping for your new car. 

In other words, you are not technically the owner of the vehicle until the loan is paid off.

Home Equity Loan

Instead of a car loan, you can use a home equity loan when buying a car. Also known as a second mortgage, the equity in your home will be  the collateral.

Since your home is better collateral than a vehicle that could depreciate quickly, you are more likely to get lower interest rates, all of which may be tax-deductible. 

However, the downside is that you will be putting your home at risk because it is certain that the lender will take your home in case of a default.

Peer-To-Peer Loan

Peer-to-peer loans are becoming popular in several areas, including auto financing. It allows peers to borrow and lend money without the involvement of a traditional financial institution, such as banks. 

The concept of a peer-to-peer-loan is to match an individual lender to a borrower. In case you want to borrow money, the peer-to-peer websites will pair you up with peers eager to lend it to you. 

Since peer-to-peer loans are unsecured, you can get the loan without pledging collateral, and your purchased car will not be at risk of repossession. However, your credit score is at stake if you don't pay on time.

RV Loan

RV loans can either be unsecured personal loans or secured vehicle loans. You can get it from online lenders, banks, or credit unions. 

It is a type of long-term financing that you can use to purchase a motorhome, camper, or travel trailer. You can consider this loan if you are into open-adventures.

But keep in mind that financing an RV can be the most expensive purchase you will ever make, right next to your home. Thus, before you get overwhelmed with the idea of getting one, you need to understand how financing it works. 

In most cases, the RV itself will serve as collateral for the loan. Thus, you won't need to stress about putting up another collateral to secure the loan. 

It is worthy to note that most financial experts don't advocate taking out a loan for elective purchases, such as an RV. 

Moreover, one must carefully consider the costs of financing unless you're going to live in your RV. The lifetime cost of an RV loan depends on factors such as your down payment and interest rates.

If you want to get the best financing deal for your RV, you can search about RV Loan Rates from reliable lenders online. 

Quick Note:


Car dealerships make most of their profit off of their auto loan financing. 

Points To Consider Before Making A Decision

Choosing the best financing option to purchase a vehicle is not an easy decision. It is an endeavor that may significantly affect your financial well-being. 

Therefore, before taking out a loan and committing to any car finance arrangement, you need to consider the following essential points:

  • Examine your needs and resources before you decide to purchase or get financing for a new car. 

  • Compare the loan's overall cost, including interest and all other fees over the term of the loan. 

  • Evaluate whether you'll be able to afford the car's maintenance cost and a loan's monthly payment.

  • Research other car financing options to find the one that suits you best. 

  • Make sure you can meet your car payments without compromising other needs.

Takeaway

Car financing is just one of the essential concerns you need to consider when purchasing a vehicle. But once it is taken for granted, it can create a domino effect on your finances.

Thus, it would be best if you take your time to review different financing alternatives and offers so that you won't have regrets in the end.

While realizing your dream car can be a great achievement, maintaining good financial health is still better.


Lauren Cordell is a wanderlust who is also interested in the financial world. She writes stories about her travel experience and destinations including camping, RVs, Airbnb's, and the likes. Her goal is to help her readers discover great deals and enjoy the best out of their travel plans.


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