Top Car Financing Options

Money and car keys

Most of us finance our car purchases with loans, but where the loans originate is another matter.  Just as one car doesn’t suit every driver, one car finance option isn’t ideal for every buyer.  Read on to decide which works best for you.

Dealer.  This option certainly has convenience going for it.  Dealers often have dedicated finance and insurance (F&I) staff on hand to find you the best deal, as the salesperson will tell you.  The caveat is that they will find the best deal amongst the lenders they work with, and may not be as good a deal as you can find on your own.  

Financial institution.  Banks, credit unions and online lenders are closing the gap in convenience versus dealer financing by extending loan department hours, often by telephone.  Typically, you can expect better interest rates than dealer-based financing, more flexibility in terms and pre-approval options.

Manufacturer.  Not to be confused with dealer financing, this option is linked with the automaker’s financial arm.  Offers vary and can be very appealing.  Bear in mind this is not for just any car at the dealership, though.  It will be restricted to new and certified pre-owned (CPO) units, and usually only those already in stock.  

Lease.  As manufacturers’ purchase offers have become more favorable, lease popularity has cooled overall.  One notable exception is among luxury car drivers, who still keep this option popular.  A lease allows you to get into a more expensive new or CPO car for your dollar.  At the end of the lease, you can simply turn the car in or purchase it for the established residual price.

Home equity.  Homeowners can consider this roundabout option of car financing.  If you have sufficient positive equity in your house, your situation is stable and you’re comfortable with home and auto financially linked, this could appeal.  Interest rates are generally lower, plus a portion of the interest could be tax deductible.

This isn’t just an option for a few wealthy people; they don’t always pay cash, anyway.  For that matter, a lot of private-party used-car transactions are financed by cash.  Whatever the price bracket, your cash flow may be better than your credit.  Maybe you’re shopping for something that causes lenders to shy away, like an older sports car.  Or it could be that you would pay more in loan interest than you could earn in interest for that amount.  All are instances that make paying cash the preferred method.  

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