Those who wish to acquire a car have options to make this acquisition through a loan. The loan to finance the vehicle can be taken out through a dealership or even through a bank.
When that moment arrives, it is common for the individual to be in doubt as to which is the best option. While there is no magic recipe, there is a simple explanation. Choosing a dealership or bank to finance the vehicle depends on numerous factors. In some cases, one option may be more favorable than the other.
By making the right choice, the buyer will certainly save money. By making a wrong choice, you may incur more costs with interest and charges.
How car financing works through a bank
When the customer decides to finance through a bank, he will need to go directly to a credit union or bank for an analysis to be carried out, and when approved, get the financing to purchase the car.
Those with good credit ratings usually have pre-approved credit before they even set foot in a car dealership. With everything approved, the creditor grants the customer a letter of credit that must be presented at the dealership. This saves a lot of time when finalizing the purchase of the vehicle.
When you have a letter of credit, it is more difficult for the dealer to waste your time showing you options for cars worth more than what you intend to pay or trying to convince you to put unnecessary complements on the vehicle.
Some credit unions or banks may allow you to apply for pre-approval online at a physical branch. It is likely that information about the vehicle will be requested by the institution that will provide the financing.
Credit unions and banks have their own interest rates that will be charged on a loan. This will be the true interest rate, as you are doing everything directly with the agency and thus the seller’s commission will not be added.
You need to remember that the fare quote you get will not be a final conclusion. It is necessary to be aware that the moment the customer goes to the dealership, a rigorous credit check will be carried out, in which the credit report will be completely reviewed before it is even approved and the actual loan rate will be determined.
Another important factor that has a great impact is whether the car to be purchased is used or new. Some financial institutions impose some limit that has to do with vehicle mileage and age. Also, a new car may qualify for a lower interest rate.
Financing through resellers
Financing a vehicle can also be done through dealers and works similarly to financing offered by a banking institution, the only difference is that the dealer acts as an intermediary and will carry out the entire process on your behalf. For the dealer to act, it is necessary that the customer has chosen his vehicle, then a form will be filled out. After the form is completed, the reseller will send it to the partner creditors.
When the reseller consults several customers, it is possible to make a rate comparison in the most varied partners. However, if the reseller is not trustworthy, perhaps the consumer is not getting all the information he needs to make a decision.
This is due to the fact that the reseller, if he wants, can choose to show only the responses of the partners that offer him a better sales commission.
Another detail is that when choosing to purchase a new car at a dealership, some dealers may offer promotional finance that can provide rates as low as 0% APR for those who are approved.
Buy here, pay here
Another financing option is when the dealership offers in-house financing. They are specialized companies and able to work with people with bad credit or even no credit. However, in this modality it is common for the interest rate applied to be higher, in addition there is a greater chance of the concessionaire quickly resorting to repossession in case of delays in the payment of the financing installments.
How to choose the best financing option
Now a very simple rule to follow. The best option is the one that saves the customer money. Therefore, it is important to take into account the final cost of the operation. While it may take a little time to collect the information from the bank for interest rates, it’s good to have patience to save on the final cost. Therefore, the ideal is to choose the option that has the lowest total final cost.
Another important factor to remember is that applying for multiple loans in a very short period of time can have a negative impact on your credit score.
Prepare yourself financially before applying for a car loan
Life is not a bed of roses, right? Therefore, it is very important to be financially prepared to apply for a vehicle loan. Make a list of all the financial income you have and all your expenses, and see if it is really possible to pay the monthly financing fees and still have a small reserve to be used in emergency cases.
Another important factor in this financial preparation is being able to set aside an amount to give down in the act of financing. The higher the down payment, the lower the final cost of the purchased asset in terms of interest paid.
Also remember that vehicles can generate some additional expense. Prepare yourself financially, as in addition to all your typical day-to-day expenses, at some point an ‘accident’ may happen, and consequently you will need to incur extra expenses. Lack of preparation can compromise all financial planning.
It might be interesting to take out car insurance so that, in this way, the vehicle is protected in case of an accident or anything else that may happen. Now that you are aware of all these important points, make sure you have the capacity to pay the installments over the long term.
The important thing is that the acquisition of this good provides moments of joy and not of anguish.