Car Loan Primer - Know Your Car Financing Options

4 MIN. READ

Buying a car is an exciting time, whether it’s your first or fifth car. Knowing your options and the best car financing opportunities helps make sure the car-buying process goes smoothly. So, before heading out to the dealership, let’s take a look at several car financing options and where you can find the best choices so you can ride off with confidence knowing you got the right deal for your budget.

What are my car financing options?

The most common car financing options available are secured loans, unsecured loans, title loans and lease buyouts. Each type of loan comes with different interest rates and terms, the rate and terms will depend on your credit history, and some options may require money down. Take a closer look here:

• A secured loan offers better interest rates and longer payment terms because it is secured by collateral and is less risky to the lender. The flexible terms can mean savings for the borrower with good credit. This is also a good option for people with lower credit scores because lenders are more comfortable approving a loan with collateral.
• An unsecured loan is not secured by any collateral, therefore making it riskier for lenders. Interest rates are higher, and the payment terms are shorter. Because this type of loan is riskier, lenders look at creditworthiness. If you have great credit and don't want to use any collateral, this may be a good option for you.
• A title loan is a quick way to get fast cash. Title loans do not look at credit but instead take the title to your car. They offer very high interest rates and very short payment terms. If your credit score isn't where you want it to be, this may be the course to take.
• A lease buyout is an alternative if you want to purchase a vehicle that you are already leasing. With a lease buyout, the value of the car might be upside down or underwater (when the market value of your vehicle is less than the amount you owe), and you may need a down payment.

Quick tip: A down payment is an initial payment you make on a big purchase. It is a fraction of the total loan amount. So, it reduces the amount you borrow and means you will pay less interest in the long run. It also can give you a lower monthly payment. It’s easy to calculate an estimated monthly payment with the rate, terms and down payment by using this handy tool.
 
Where should I finance?

Like every big and exciting decision in life, you have choices. Where to finance your car loan is no different:

• Dealership: Financing your vehicle through a dealership may be convenient since they work with various lenders to find you financing. However, dealerships can add additional costs such as warranties to the final sales price, resulting in a higher payment. Also, while dealerships offer additional discounts or special car financing promotions (0% interest rates and terms up to 84 months), you will not qualify if you do not have excellent credit. Plus, 0% financing is not quite the deal you may think it is. Dealerships often increase the car price to offset this "deal," and oftentimes, it comes with built-in penalties.
• Banks: Banks provide secured and unsecured loans. If you have an established relationship with a bank, you may be able to find favorable interest rates and terms. However, banks usually do not offer special financing promotional rates. Instead, the rate and terms you find at a bank will depend on collateral and your creditworthiness.
• Credit Unions: These not-for-profit organizations are owned by their members, not outside shareholders. Rather than paying shareholders, credit unions reinvest earnings into their members in the form of better rates, low to no fees and exclusive discounts. Credit unions often offer lower interest rates on auto loans than banks. Their members can take advantage of promotions through car-buying services, and the loan approval process is typically more flexible. Being a member of a credit union also gives you more personalized service options. If you are already a member of a credit union, they often offer additional interest rate discounts to recurring borrowers.

Are you ready to purchase your dream car?

When you're ready to buy your next vehicle, Devidot Credit Union is here to help you explore your options. Contact us or visit any of our locations to see how you can become a member (if you aren’t already) and get the best car financing option for your car purchase. Devidot Credit Union has been serving members in South Florida for 70 years, and we can't wait to help you!