Image courtesy of Carolinqua
If you are looking to buy a new car, whether brand new or used, then you will probably have to think hard about how to finance it. Cars do not normally come cheap and so you will need to take some time to consider what your options are with regards to financing it. There are many options but five of the main ways that people finance cars are listed and discussed below.
If you have enough savings to pay for it, then this will be the cheapest idea. Borrowing money will always cost more than using savings as the return on savings accounts is always less than you get charged for borrowing, except in very exceptional circumstances. You may worry that your savings are your back up in case of emergency, but you could borrow in that emergency but in the meantime benefit financially by not doing so.
Car Loan from Dealer
If you buy from a dealer, they are likely to have a finance package that they can offer you. Traditionally these can be really expensive, but some do have options that are worth considering. Sometimes there may be a 0% finance deal but you may be able to negotiate more money off the price of the car if you do not use their finance deal. It can take quite a bit of thought and negotiation to decide.
Car Loan from Bank
Your bank may lend you the money to buy a car. Their loans could be more competitive than those from a dealer. It is worth comparing them to see who may have the best deal. Also look at other lenders as well as there will be differences between them with regards to the cost of the loan, fees, interest rates etc. You may find that it is useful to look at a few comparison websites to see who has loans available and how the rates compare.
It can often be possible to buy a car on a credit card if you have a high enough credit limit. The dealer may charge you for using one though and the fees and interest on a credit card tend to be very high. If you can use a 0% card, this would be ideal but you would want to make sure that you will be able to pay off the balance once the 0% period ends as the interest rates can then go up very high.
Borrow from Friends or Family
Another option some people use is to borrow from friends or family. As long as you have a solid arrangement in place and a repayment plan this can work for some people. However, it can cause problems in your relationship if the lender suddenly needs the money and you do not have it to pay them back or if you moss repayments that you promised.