Automobile Financing - Know Your Options
By: Tomas Cullin
You ve found the car that makes your heart race by 120 beats per
minute. Now only one thing stands between you and the car of your
dreams: financing the purchase. In a perfect world, you d pay the
full price in cash without blinking. But if you re like the seven
out of ten car and truck buyers who don t live in a perfect world,
chances are you d be paying for your car through one of several
financing schemes.
Understanding the basics of each car financing option is key to
choosing the automobile financing strategy that best suits your
situation. Here is an overview of auto financing options that may
be available to you.
Auto Loans from Lending Institutions
You can get a car loan from a bank, credit union, or other lending
institutions. The car that you purchase will serve as collateral
for the auto loan. This means that the lender can repossess your
vehicle if you default on the car loan. Auto loans are a popular
car financing option because they generally offer reasonable interest
rates and are relatively easy to get.
Two factors are likely 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, the lower your monthly installment will be. But
you ll end up paying more towards interest and this will increase
the total cost of the auto loan. If you can afford it, get a short-term
loan. Your monthly installment will be higher, but you ll be paying
less money over all. The second factor that may 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 the elevated credit risk.
Dealer Financing
Like traditional auto loans, dealer financing is reasonably easy
to get. Most dealerships have relationships with numerous lending
institutions, so they can arrange car loans even for car buyers
with blemished credit histories. To compete with traditional bank
loans, many dealerships offer zero percent or very low interest
on dealer loans. However, such loans are 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 approaching the dealership for possible financing. By 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 a home and have accumulated substantial equity on your
property, then you may consider getting a home equity loan or a
home equity line of credit. Home equity loans are fixed or 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 based on the equity of your home. Home
equity loans tend to have lower interest rates than credit cards
and other types of personal loans. Interest payments on home equity
loans may also be tax-deductible up 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 don t want 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 drive your dream car home. Like home equity
lines of credit, credit card advances or credit card drafts are
revolving lines of credit with variable interest rates. To entice
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 have higher
interest rates than home equity loans, traditional auto loans or
dealer loans. Financing your auto purchase through credit cards
could also leave you vulnerable to hefty penalty charges if you
make a late payment or exceed your credit limit.
You may copy this article and place it on your own website, as long
as you do not change it and include this resource box including
the live link to the Credit Repair Advice site.
Tomas Cullin is a credit repair expert. He
recently authored a very popular report: The Dangers of Identity
Theft and How To Protect Yourself. Get it at creditrepairadvice.net/idtheftsls.html
He has hundreds of tips, tools and articles on his website that
you can use for your own ID protection! It's a great resource! Visit
him on the web at: creditrepairadvice.net
or the BLOG creditrepairadvice.net/crablog.
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