 |  |
As cars are one of the most expensive things most people will buy in their lifetime, many people look to banks for help in financing their purchase. If you're lucky enough to be able to pay in cash, than you don't need to worry about financing, but otherwise, there are two primary places to go to finance your car.
The simplest place to arrange for financing of a car, assuming that your credit is in good standing, is the various car dealers themselves. They can often make it a more painless transaction for you, as they can help to finalize all the required paperwork together, making it one seamless transaction (like a one-stop shop), and thus far less painful. Of course, you get what you pay for - by streamlining the transaction, you not only have less flexibility in lending rates, but there may also be some hidden costs that would be higher than if you went through a bank. The best thing to do if you are planning on arranging for financing at a dealer is to research posted lending rates, fees for arranging financing, competitive lending rates from other dealers, and also be fully aware of any dealer specials in advance, so that you are in a better position during the negotiation process to get the best terms and rate for you. It's easy to get lost in the numbers, especially when you're dealing with the high price of a vehicle, but a small difference in lending rate can amount to a large difference in your pocketbook over the full course of the car loan.
To get more competitive financing terms, it is often advantageous to shop around before finalizing the purchase of the car. You could not only deal with multiple dealers, but you could also look at rates and terms from multiple lending institutions and banks. Because the car acts as collateral against a loan, most banks will offer better rates on car loans than they would on unsecured loans, and the often have special categories of loans just for car buyers, even if you're a first-time buyer. If you have a strong credit rating, you're often in a better position to negotiate the lending rate lower than the posted lending rate, so don't hesitate to stop by your bank in person and leverage your good credit and your banking business to get a difference in the interest rate.
If you don't have a strong credit rating, if you've declared bankruptcy, or have defaulted on previous loans, you may still be able to arrange for financing for a car purchase. Again, because a car acts as collateral for the loan, it is considered a secured loan, so lending institutions are more willing to take a chance with you and provide you with the cash to make your purchase because they can reclaim the car in the case of another default. Be aware that this is considered a higher risk loan and will certainly carry a higher lending rate as a result, but if you're willing to shop around and accept less than ideal conditions, you can still drive away with a new car.
