Financing a Vehicle
Before you start to envision the wind blowing through your hair in your new convertible, think about your budget (read more in our "Preparing a Car Budget" section). Many people make the mistake of choosing the car before finding one that fits into their price range. Sit down and decide how much money you're prepared to spend and how you're going to pay. Today's market offers you a number of ways to finance your purchase, each one with its own advantages and disadvantages.
Cash. This one is quite simple. You choose a car, make sure you're satisfied with its condition and performance, and then pay the full price. The good side—there will be no extra payments. The bad side—you pay a large sum all at once. If this works for you, go ahead and pay the price. You might save some money by using this method.
In cases when you don't have enough cash, you have the option of securing a loan for your purchase. If you're buying a vehicle from a dealership, you may obtain financing right on the spot. However, that's not the case when buying a vehicle from a private party. You will need to arrange financing prior to closing the deal. You can obtain a loan with a bank or credit union.
Prior to applying for a loan, do a bit of research. Obtaining your credit report is the best place to start. The report contains your loan and payment history, as well as information from public records. This information is used by the creditor to assess your reliability and influences the rate you receive. Make sure you check your report for accuracy as errors will influence the outcome. Taking some time to correct these errors or closing previous loans prior to obtaining a new one may save you a considerable sum.
Applying for a loan at a dealership may seem convenient, but what does it really cost you? The dealer himself does not provide you with a loan, he resells your contract to a third party, usually a bank or a credit union that monitors your loan. The dealer gets better rates just because he shops for them, so why not do the same? Try to get some quotes from banks and come to the dealership with a number of options at hand—there are various online services that allow you to do this without even leaving your home. You just fill out the online application and you'll get a response from lending institutions competing for your contract. When you go in to the dealership with these quotes, the dealer may offer you even lower rates. It's all about bargaining. Research is the key point in this process—you must be well prepared before signing the papers or you may end up paying a higher rate.
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