I don’t know about you, but vehicle maintenance, unreliable vehicles and I do not get along. Repeat: we do not get along. Last year my husband and I started looking around for a new, (whoops, when I say new I mean newer, not new) vehicle. I’ve got a used car three years in my possession with way too many miles per year and I’m starting to think it’s time to be looking around for a replacement.
But with the way gas prices were behaving in 2008 and with me stuck with an SUV gas guzzler, it wasn’t a good time to talk trade. So, another year has passed and now the car is starting to show its age: engine lights are coming on; the electric door locks have quit, leaving me unable to lock my vehicle; the seat is cracking. Is anything made to last more than 4 years in this country anymore?
So, time to start looking at options. The biggest job may not be searching for the vehicle, but reviewing all the financing options. The vehicle shopping is more fun, mind you, but let’s talk about the financing part. I strongly believe that it’s important to decide how much you can afford and how you’re paying for a vehicle before actually shopping for one. Nothing is worse than picking out a vehicle only to find out that it is not within your ability to pay. It is great to be able to drive a vehicle that is paid for, but if you are like me and 70 percent of Americans, you will likely finance your next vehicle purchase.
Dealing With Dealer Financing
Dealer financing is often the most convenient source of financing. As with most things, convenience comes at a higher cost. Interest rates are typically higher than your bank or credit union and can also have higher search, registration and document fees attached. You should be aware that the dealer actually sells your loan to another lender. This could be to the bank or credit union that you typically deal with. Hence, it’s no surprise that dealers generate a lot of income from dealer financing.
Do your homework before entering the dealership by getting a pre-approved loan from your financial institution. You can accept these offers to try and reduce the dealer’s interest rate and make the various lenders compete for your business. Then, take the best deal available.
Financing Options Comparisons
Financing with your bank or other financial institution. Since there are many programs available, it is difficult to wade through all the options that may be thrown at you when shopping for financing. Your financial institution is going to have some cut and dried options: in particular, the interest rate, document preparation and registration fees.
Financing with dealers. The dealers, however, may have a plethora of options. Cash back and zero percent deals that are offered may still cost you more over the term of your loan than a low interest rate from your traditional financial institution. Make sure you look at the total cost of credit over the term of the loan — not per month — to ensure that you are paying the least amount over the course of the loan.
Having your financing previously arranged can sometimes get a few dollars knocked off the price as well. When they ask, “Will you be using our dealer financing, today?” I get great satisfaction from the look on the finance guy’s face when I say, “Thanks, but no, I’ll write a check for that.”
Financing with a home equity loan or using collateral. There is a third option of a home equity loan to help you purchase a vehicle. With this option, if you have enough paid-up equity in your home, you may qualify to borrow against it for a vehicle. The interest rate will be lower than for other types of consumer loans. But exercise extreme caution going this route because a home equity loan means your home is now the security for your vehicle. Any default on payments means your home is at risk. There are many fees attached to home equity loans (or lines of credit) and you must do your homework to ensure this is the route you wish to take. Lenders may give you this option without explaining all the implications attached to it. Traditionally, home equity loans are used for repairs, maintenance, etc. on the home involved. In today’s economic environment, it seems that every lender out there is giving home equity as an option for financing almost anything. Do your due diligence before trading the security of having your home for the satisfaction of a luxury purchase.
In this day and age, a vehicle has become a big expenditure and should be researched and financed carefully. Do your homework and sleep well knowing that you got a great deal!