Automobile Financing - Knowing Your Options

Ok, so you have found the car which makes your heart race to 120 beats per minute. Now just one thing stands between you and the car of your dreams: that is financing the purchase.

In a perfect world, you would pay the full price in cash without blinking. But if you tend to be like the seven out of ten car and truck buyers who do not live in a perfect world, chances are you would be paying for your car through one of several financing schemes.

Understanding the basics of each car financing option is the key to choosing the automobile financing strategy that will best suit your situation. Here’s an overview of auto financing options that can be available to you.

Car Loans from Lending Institutions

You can get a car loan from banks, credit unions, or other lending institutions. The car that you purchase will serve as collateral for the auto loan. This will mean that the lender can repossess your vehicle if you make a default on the car loan. Auto loans are a popular car financing option because they generally offer a reasonable interest rate and are relatively easy to get.

Two factors are liable to affect the total cost of the car loan. One is the term or duration of the loan. Generally, the longer the term of the loan is, the lower your monthly installment will be. But you will end up paying more towards interest and this will increase the total cost of the car loan. If you can afford it, try to get a short-term loan. Your monthly installment will be higher, but you will be paying less money over all. The second factor that can affect the total cost of your car loan is your credit rating. Creditors with less-than-stellar credit history are usually charged a higher interest rate because of their elevated credit risk.

Dealer Financing

Like traditional car loans, dealer financing can be reasonably easy to get. Most dealerships have relationships with many lending institutions, so they can arrange car loans even for car buyers with blemished or bad credit histories. To compete with traditional bank loans, many dealerships offer a zero percent or very low interest on dealer loans. However, such loans are also available to car buyers with stellar credit ratings. Consumer experts advise car buyers to get pre-approved on an auto loan from a bank or credit union before even approaching the dealership for possible financing. Through 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 your home and have accumulated substantial equity on your property, then you might consider getting a home equity loan or a home equity line of credit. Home equity loans are fixed on 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 which is based on the equity of your home. Home equity loans tend to have a lower interest rate than credit cards and other types of personal loans. Interest payments on home equity loans may also be tax-deductible 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 do not want to run the risk of losing your home.

Credit Cards

A credit card advance or credit card draft from your credit card company can help you towards driving your dream car home. Like home equity lines of credit, credit card advances or credit card drafts are like revolving lines of credit with variable interest rates. To attract 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 tend to have higher interest rates than home equity loans, traditional auto loans or dealer loans. Financing your auto purchase via credit cards could also leave you vulnerable to hefty penalty charges if you make a late payment or exceed your credit limit.

Article Source: http://www.debtfinancearticles.com.

About the Author:
Elliott Dawson is a contributing real estate editor at http://www.debtfinancearticles.com/. This article may be reproduced provided that its complete content, links and author byline are kept intact and unchanged. No additional links permitted. Hyperlinks and/or URLs must remain both human clickable and search engine spiderable.