6 Ways to Pay For Your Next Car

October 6th, 2015  |  Auto Insurance

When it comes to getting a new set of wheels, most people are more concerned with things like gas mileage or stowing capacity, but choosing the right method of financing can lead to significant savings – as well as have a big impact on how you need to plan your finances.

Before you start shopping around, make sure you understand the ways to pay for your next car.

Dealer Financing

Chances are if you’re going to a dealership you’ll have access to whatever financing they offer you after you’ve settled on your vehicle of choice. When you see commercials or advertisements about the zero or super low interest rates dealers are offering, you might think they’re automatically the best place to get financed.

Not so fast.

While getting a zero or low interest rate is certainly possible with dealerships, the thing they’re not saying is that it’s harder to get approved for those rates. They also don’t advertise the shorter terms for such loans, meaning that while you are saving money overall, you’ll be paying more every month. That could put a big strain on your budget, especially once combined with auto insurance payments.

Car Loan

Dealerships aren’t your only option for getting a loan to pay for your next car. You can also shop around to find one on your own. Car loans basically come in two flavours:

1. Banks are actually pretty good in this situation because unlike dealers who are also trying to sell you the thing they’re helping you pay for, banks are just hoping to make some cash off the interest. This often translates into a bit less pressure and more competitive rates. Banks may be slower to approve your application, however, and as with a dealer, approval is not guaranteed.
2. Non-banks. These lenders are similar to banks. However, because they’re smaller, you can enjoy a more personal experience. They can work around your hours if needed and they work hard to get the best deal for you. One huge advantage these companies have is that some of them can guarantee you an approved loan for as much as you qualify for. It’s a great way to know what your budget really is instead of falling in love with something that you don’t get approved for.

Cash

Best part about using cash to pay for your next car? You save money on not having to pay interest. The downside of this is that cars can be pretty pricy, so saving up the cash to get one may take longer than you can afford to wait for the vehicle. Another downside is that many dealers don’t offer incentives when you pay in cash. It’s in their interest to encourage you to finance (they get a kickback), so paying cash doesn’t always offer increased negotiating power.

Credit Card

There aren’t many benefits to paying with credit. If you use a rewards card, buying a car on it would rack up some nice points. There’s also no risk of application rejection since the card has already been approved. But it would also rack up thousands of dollars of really high interest debt. If you’re planning to use credit be prepared to pay it off fast or you’ll likely end up paying double what you would have with another lender.

Everyone is different, so there’s no automatic winner for best vehicle financing option, but if I had to pick a loser, it’d be credit card.

Once you decide what works best for you, it’ll be easier for you to stick to your budget and prepare for the car buying experience.