If you are looking into new car financing, it is important that you understand what all of your financing options are.
Decide Whether You Want to Buy or Lease
The first thing to decide is whether to buy or lease your vehicle. Both are forms of financing, but offer significant differences depending on what you want. Buying offers the security of knowing you'll own the vehicle and after two to five years, it is paid off and yours, but you also are likely to have higher payments during those two to five years. Leasing is essentially paying to use the vehicle; it usually requires no down payment, and offers lower monthly payments, but after your lease agreement is up you have to choose to either buy it for the depreciated value (which, combined with your monthly payments, is usually more than the original cost) or give it back to the dealership, at which point you may opt to lease another new car.
Consider APR and Loan Terms
As you are looking around for the best rates, there are certain things to look into that some lenders will offer and others will not. Consider the annual percentage rate (APR) along with the term of the loan. Remember that not every lender calculates your credit score quite the same, and this can change your interest rates dramatically. An important thing to ask about is if there are penalties for paying off your loan early. Also, some lenders, such as the dealership where you purchase the car, may offer other special incentives with their loan.
After choosing to buy or lease and researching all the relevant information to compare prices, you should be ready to make the right choice for your financing.
Check with Credit Unions
If you're a member of a credit union, and have good or excellent credit, credit unions often offer some of the very best car financing deals to be found anywhere. Generally speaking, rates for a credit union car loan are among the lowest--especially when compared to conventional bank finance loans and secondary auto finance companies.
Check with Captive Finance Companies
If you've ever purchased a new car truck from the dealership, and then use the dealership financing option to finance your car, then you've probably already done business with a captive finance company. Captive finance companies are the divisions of major car manufacturers that provide financing on vehicles sold by a network dealership for the manufacturer.
Often, captive finance company rates are competitive but not the lowest be found--but there are times when they offer rates that cannot be beat. You will often see advertised specials on television that talk about very low interest rates for new cars and trucks In fact, sometimes these interest lakes can be as low as 0%.
However, these rates are usually only reserved and made available for customers with excellent credit; therefore, you may or may not qualify for these very low interest auto loans. Also, you should be aware that although interest rates on these types of loans are extremely low--the rates the term for the loan may be very short. Captive finance companies may require that you finance the vehicle for a term as short as two or three years to qualify for the very lowest rates.
Look for Great Financing Options Online
While there are certainly many excellent sources and websites on the Internet for low-priced car loans, one of the very best sources is CarsDirect. In fact, CarsDirect offers some of the lowest rate new and used car financing anywhere to be found. Also, they make applying for a new or used car loan very quick and convenient. By filling out a short one-page web application form, CarsDirect can generally have an approval amount back to you within just a few minutes. You can then use your approval to purchase a vehicle from more than 1.5 million new and used vehicles.
Consider Dealing with Your Local Bank
If you do a substantial amount of business with your local bank, then you may want to consider giving them your car loan business as well. While some conventional banks offer interest rates on auto loans that can be a little higher than some other sources, they will usually do their best to offer very attractive rates to longtime and well established customers. Therefore if you have had a checking or savings account with a particular bank for a long time or if you've taken out home loans, personal loans or other types of loans with your bank--you should definitely give them a chance. Banks can usually be as competitive as they want to be, and can offer interest rates that you can afford and also offer you the convenience of keeping your loan business with the same bank that you use for deposits and other types of loans.
Consider Leasing with Bad Credit Options
When considering the purchase of a new vehicle, you should look into the option of new car leasing. Leasing is an option that sports several benefits. Some of these include lower monthly payments. You can get a new car every three years, less maintenance to worry about, little-to-no down payment, and at the end, you can just walk away. On top of all that, if you have little or bad credit-leasing may be the only option available.
However, this is not to say that just because one is able to lease a vehicle with bad credit that the rate will be as good as with a high credit score. In fact, having a low credit score can qualify a person for having a very high APR--as high as 23%. Those with a bad credit score might be less likely to have special promotions granted to them. This is because those special promotions are for "well qualified lessees". What does it take to be considered "well qualified"? It requires a credit score above the 680 to 720 range, a steady income, and no excessive debt. Anything that doesn't fit those requirements is subject to harsher treatment and a harder time getting a good deal on a car.
Some of the penalties that a person may have to pay if they attempt to lease a car would be: A high monthly interest rate (as mentioned above), the possibility of having to pay a large down payment, or an up-front security deposit that may need to be paid. Sometimes all three could be repercussions suffered by the buyer.
However, there are a few steps that can be taken to kill two birds with one stone, and the first involves finding a lender. Having a bad credit score should be the end of it all in the search for a new vehicle. There are lenders out there who specialize in sub-prime lenders. Granted, there will be a high APR, but it's still a loan, and it is still an opportunity to improve upon a bad credit score. Another option would be to have a co-signer. This means that if the original lessee would fail to make a payment, the co-signer would be responsible. This could be easy to do if a willing co-signer can be found. A slightly more unusual method of increasing the odds of getting a lease with bad credit is to compile a list of about ten references for the company so that people can vouch for you. Just because a person has a bad credit score, doesn't necessarily mean they intentionally do not make payments. They may have had a rough time for awhile that managed to ruin everything.
While having a bad credit score can make leasing a vehicle more difficult, accomplishing such a task is a golden opportunity to begin repairing that score via low monthly payments. Not all hope is lost when the score isn't as high as it could be. It's just important to shop around and be honest with lenders. Know what you are getting into and start to make a conscious effort in building your credit score back up.
