Financing is the best way to be able to start driving before you have the money saved up to buy your vehicle. If you’re interested in getting behind the wheel of the vehicle you want sooner, financing provides a way to do so.
That said, you shouldn’t just take any deal because you could risk spending more than you need. Here are a few suggestions regarding how to avoid getting caught in this situation:
What is Financing?
The best way to guarantee that you wind up with a desirable financing agreement is to ensure that you understand as much about how it works as possible before you enter into negotiations. In light of this aim, you should know that financing is a credit agreement between you, the buyer, and a lender for a loan that allows you to buy a car. This contract, or car finance agreement, stipulates an amount of interest you’ll pay back throughout your loan.
Is it a Good Idea to Finance a Car?
Considering the cost of buying a vehicle outright, the question isn’t usually whether car financing is a good idea but what vehicle is the right one to finance and what kind of deal you can afford. That said, every offer is not created equal, so you should do some preliminary work to inform yourself about what to expect when you first talk to a used car dealer.
While you might be better off buying a car outright to avoid paying any interest on a loan, most people would usually prefer to gain the ability to drive before they can save the money to avoid financing. Often, car buyers have a legitimate need to own their vehicle sooner, such as the need to transport a family easier or to use their vehicle to earn money.
What is an Annual Percentage Rate (APR)?
If you’ve paid attention to commercials for new cars or dealerships, you’ve probably heard the term APR financing thrown around. Since all financing is a type of loan, the APR, or annual percentage rate, is the rate you’ll need to pay monthly to the lender for borrowing money. The APR is similar to your interest rate, but it also includes the cost of extra fees.
Length of Loan Term
When considering the financing package you are offered, you should always be sure you know the length of time it will take to pay off the loan within the terms of your financing deal.
Different Types of Financing
Now that you understand the basics of car financing, you should also know that there are different types of car financing that you might consider, including:
- Personal Loan
- Personal Contract Purchase
- Hire Purchase
Your next step toward finding the best car financing agreement will be to learn more about each of these types of financing to determine the best option for your situation. Talk to a used car dealer near you to find out more about what kinds of financing they offer and get advice on the best options for you.