Are you thinking of buying a new car but don’t know how to finance it? Most people finance their vehicles. These are the 6 most common ways to do it, which one suits you best?
#1 Get a personal loan from a financial institution
It is the most common form of financing and is normally offered by banks, savings banks, and other credit institutions. To access these loans, you will have to demonstrate that you have a good credit capacity and that you will be able to repay the money within the agreed term.
The interest and total costs can vary quite a bit between different loan providers, making the purchase of the vehicle much more expensive. Keep in mind that the supplier will pretend to secure the loan with one of your assets. By doing this you may be putting your possessions at risk.
Pros: You can process it quickly and have the funds almost immediately.
Cons: Risk and interest rates can be high.
#2 Get a loan from a friend or relative
Another option is to obtain a loan from a friend, relative, or acquaintance instead of a lending institution. In this case, it is important to discuss the loan in detail and put everything in writing to avoid future problems.
Pros: it is not necessary to carry out any solvency analysis and you will have more flexibility in the terms. Depending on your relationship with the person who lends you the money, the interest rate may be lower or even non-existent.
Cons: You can put a friendship or family relationship at risk.
#3 Purchase in installments
This financing method is based on buying by installments. It consists of signing a contract with the seller (local or international) through which you agree to buy a vehicle in a certain period of time. You can use the vehicle while paying fixed monthly installments until you pay the full price. You will be the registered driver and responsible for the insurance and maintenance of the vehicle, but the seller will be the legal owner until the last payment is due. Afterward, the car will be completely your property.
Pros: Sellers offer this alternative directly, and it is quite simple and quick to process. Payments are flexible and the deposit is usually small.
Cons: You may end up paying more in the long run because the interest rate will generally be higher, which is also a drawback. Unlike flexible financing, you usually don’t have the ability to trade your car for another model once you own it.
#4 Flexible financing
The major car brands offer the possibility of a flexible payment plan. It is an option similar to the installment purchase with some differences. Contrary to the previous method, when you complete all the payments you can decide to keep the car or return it without any commitment or exchange it for another model of the same brand and pay the difference.
You could also negotiate a discount for the new model. This option is usually offered for specific brand models and not for all available cars.
Pros: You can change your mind at the end of the contract about which car you want to have. You have the confidence that a great brand of vehicles recognized in the market offers you.
Cons: Contract terms may be less flexible to negotiate than with an installment purchase.
#5 Finance lease
If you are considering financing a car through the leasing or renting option, you will have to make a monthly payment to the leasing entity in order to use the vehicle. The only requirement is that the mileage cannot exceed a specified limit. At the end of the contract, you will have to return the vehicle to the entity or buy it for its residual value (some dealers do not offer the purchase option).
Pros: You won’t have to worry about vehicle depreciation and you can easily switch to another model.
Cons: The total costs of the operation can be high due to all the included services. A penalty may have to be paid in the case of exceeding the permitted mileage limit.
#6 Save and pay with things you don’t use
You don’t need to get involved in any financial deal if you already have some money saved, have received an inheritance, own an old car and sell it, or do other stuff you can get rid of to make money. There is also the unlikely event that you win the lottery. Then you will have enough money to pay for your new vehicle.
Pros: You will not pay interest or depend on anyone else.
Cons: May take longer than other alternatives. It requires a greater economic effort and not everyone can afford this option.
In conclusion, buying a new car does not have to be a problem for you. There is an alternative for every need, lifestyle, or pocket. So, get rid of your old car now and get a new one! You can start by finding out how much you could get for it.