If you’re in the market for a new car, you’re probably also in the market for some kind of way to pay for it.
In fact, in 2018 alone, Americans bought over 17 million brand new cars and over 40 million use vehicles. That’s a clear indicator that many Americans are taking advantage of a strong economy to trade in their old clunkers for a shiny new toy.
The question of how to pay for that shiny car remains, however. While some Americans do have huge amounts of money lying around to purchase a new or used car in cash, others would like to pay for their car overtime in installments thanks to some kind of loan.
If you are in that latter group of individuals who want to take out a loan, use it to buy a car, and pay it back over time, consider the following financing options to get your new car.
Car loans are very similar to personal loans, except that with a car loan, the car you buy is actually the item you are putting up as collateral in a secured loan. Using your car as collateral means that if you default on your payments – that is, stop making payments on your loan – your lender can seize and repossess your car. This is a fairly large risk, but it does come with some benefits.
For one, interest rates are typically lower with Car Loans, and you can be approved even if you don’t have excellent credit.
In order for your car to be approved as a form of collateral in a car loan, it must meet several guidelines.
- New cars have to be brand new and purchased from a licensed dealer only. If you are buying a new car, you will most likely enjoy the lowest possible interest rates with your secured loan.
- Used cars are required to be less than sever year old for a number of lenders.
- Typically, car loans have minimum loan amounts that range from $4,000 to $10,000. If you need less than that to buy your car, you may want to consider another route.
This is one of the most popular ways to get the money you need to buy the car you want. A personal loan will allow you to borrow a lump sum and then pay it back by making regularly set payments over time.
Most personal loans have a minimum value and that can range anywhere from $1,000 to $10,000 depending on the value of the lender. Some lenders also have maximum amounts, so when you are interested in borrowing from a specific company, make sure that your potential lender doesn’t have a cap amount less than what you need.
With personal loans, you can expect to have the option to spread your loan from one to seven years. They can be both secured or unsecured. A secured loan works in the same way as an unsecured loan, except that the borrower will have to put something like a house or a car up as collateral.
If you are unable to secure a loan necessary to buy the car you want outright, you may want to consider leasing a car. Leasing a car is a good option because you get to drive the car without owning it outright, and by the end of your lease term (terms are usually between 36 and 60 months) you have the option of buying your car.
Car leases can be ideal way to secure a car for people who are worried that they won’t be able to sustain paying off any loan they may take out to purchase a car. Leases typically have lower monthly payments than loans because with a lease, you’re paying for the depreciation of the car during the years that you drive it, as opposed to the brand-new car.
This is also called a Commercial Hire Purchase and it takes place when a financier buys the car outright and you hire it from them for an agreed upon term. It is similar to a lease except for you do not have to agree on a cost of buying back the car at the end of the hire purchase.
This might not seem like a first choice for most people in the market for buying a car, but it can actually be a good idea for those who are looking to borrow an amount that is lower than the loan minimum for many potential lenders. This is even more true for those who enjoy a low interest rate with their credit cards.
Buying a car with a credit card is ideal for people who know that they will be able to quickly pay off the expense of the car that they put on their card. If you are able to quickly pay off the car on your credit balance, you could reap some pretty nice rewards in terms of points with your cards.
This option is for individuals or business who need a car that will be used for business more than 50% of the time.
A chattel mortgage works by a financier advancing the funds to the customer to purchase the vehicle. The customer then takes ownership at the time of purchase and the financier takes a mortgage over the vehicle as security for the loan, taking ownership of the car immediately without having to take out a loan. Once the contract is completed, the security interest is removed, giving the customer the clear title to the vehicle.
The truth is, there are a lot of different ways to pay for the vehicle you need, that much is clear by this long list! It is your job to decide which financing option is right for you when you are purchasing your new car.