Borrow for the car you want, with the terms you need
There are a huge number of auto loan providers online and in the world, so before you choose to borrow, make sure you understand what you’re getting yourself into. Here are a few big things to understand before you choose to borrow.
|Loan from Dealership||Loan from Physical Branch||Loan from Online Lender|
|Strengths:||When dealers offer sales, the interest rates can drop to 0%||Enable you to buy used cars from individuals, can have medium-low rates||Are the easiest type to obtain, no need to even leave your home. Can sometimes have lower credit requirements.|
|Method of distribution||As the desired vehicle. You never see the funds.||As a paper check or wire transfer.||As a wire transfer|
|Repayment Schedule||Flexible, variable terms are usually offered||More flexible, with additional financing options such as additional collateral||The least flexible option, usually with fixed terms|
|Interest Rates||Generally the lowest, frequent sales and discounts||Medium, but can be lowered with good credit and collateral||Highest rates, generally fixed term, fixed rate|
|Flexible, variable terms are usually offered||More flexible, with additional financing options such as additional collateral||The least flexible option, usually with fixed terms|
- Dealership loans are preferable when purchasing a new vehicle, but always wait for a sale and avoid paying high interest, or any interest at all if possible.
- When obtaining easy money is the name of the game, online loans are what we’d recommend. You don’t even need to leave your home to get approved and have the funds transferred to you. This if often beneficial in situations where quick decisions are necessary or physical banks are uncooperative.
- Loans from physical banks are great if your credit is good and you have a reputation with the bank. This can result in expidited service speed, lower interest, and choice loan terms.
When purchasing from a dealership, it is sometimes possible to get on-the-spot financing from a physical bank. Whether or not this is a good option depends on the rates that your bank quotes. Generally, we recommend getting financing directly from the car company, since they have a vested interest in your purchase. It’s mutually beneficial for the dealer to lend to you, since they get profit on the car already.
How to Structure your Car Loan
There are a couple of options here, fixed and variable rates of interest.
Fixed Rate: Your monthly payments will include both a fraction of the principle payment and a fraction of the total interst owed. Early in repayment, most of your payments will go towards interest, and later in your term most will go towards the principle.
Variable Rate: One of the big differences from fixed term loans is that payment amount can be different here from month to month depending on the number of days. Longer months will have higher payments, and shorter months (we’re looking at you, February!) will have lower payments. Some variable rate loans allow payment to vary from month to month on top of the variation in number of days. If you’re unsure, just ask your lender.
Early Repayment Options
Some lenders will allow you to repay your loan in full at any time, without additional charges. This type of lender will be preferred if you anticipate a pay increase. With negotiation, this option is generally available from dealerships and physical banks. Watch out for it for online loans, though!
How to apply
If you’re looking to purchase a vehicle directly from a dealership, we recommend that you head on over there and try to find financing directly. If, however you want to purchase a used car or your dealership has already turned you down, check out our directory. There are also several online auto loans available, if the other two options are somehow not possible for you.
Borrowing versus leasing
This is an issue that often crops up when people are thinking about getting a new vehicle. When it comes to leasing, you are basically renting a car for a protracted period of time. At the end of the day, this means paying a lot of depreciation. Leases are often also hamstrung by a low kilometer limit, since the car is never yours and still belongs to the manufacturer.
With all of this said, leasing can be preferable to direct financing if your monthly income is high, but you have a low amount of cash, or if it’s important to you to always be driving a new vehicle.