Consumer's Guide: Car Financing Options

When it comes to buying a car, there are so many more options than dealership financing. Depending on your credit. Although the crisis in the automobile industry has made dealership financing more competitive. Check every viable option for you before you buy. It is important to get all of the information you can before even showing up at a dealership. Remember, it pays to shop around.

You have several choices when it comes to obtaining financing, such as, bank financing, credit union financing, home equity loan, home equity line of credit (HELOC), leasing, in house financing, or note lot financing. We will go over all of these options, but first, let's go over some terminology.

Terminology

• Simple Interest: You the buyer pay only interest on the balance owed. There is no penalty to pay off early and if you pay a little more each month, it goes to principle, paying off your note faster.

• Front End Installment loan: Interest is paid every month. Early payments only apply to interest, not principle.

• Prime lending: Better financing options usually reserved for people that have good credit. However, some people qualify for prime lending and are given sub-prime lending. Be sure to know what you are getting into.

• Sub -prime lending: When borrowers have lower credit scores, higher debt-to-income ratios, not enough cash in hand for down payments or a combination of these .

• Bank financing: When to borrower obtains a loan from their personal bank to purchase a car.

• In house financing: when the borrower uses the car lots banks to finance the loan.

• Credit union financing: When the borrower goes to their credit union to finance the loan. If the borrower does not have an account at the credit union they are applying at, they will have to open one. Usually very cost effective and you can get 100% financing.

• Home equity loan: Using the equity you have built in your home to obtain a loan. Also known as a 2^nd mortgage. You can usually get a lower interest rate. Also it is tax deductable.

• Home equity line of credit: (HELOC) similar to a home equity loan, but the borrower has revolving credit, like on a credit card.

• Note Lot financing: when the borrower does not use credit for a down payment, but work and rental history. Only for used cars. Also known as "buy here, pay here". Usually do not include any warranties.

• Leasing: Equated to renting a house. You do not own the car when you are done and cannot do any upgrades (such as a CD player) only regular maintenance. Stricter financial responsibility than financing. You only pay for part of the vehicle cost. Usually have little to no down payment and lower monthly payments, BUT you only have it about 48 months and you have limits on the mileage you drive. (about 15,000 miles a year) But if using for business purposes, there is a significant tax write off. Insurance is usually higher. You also build no equity.

When buyinga car, it is very important to do your homework. Check out all of your options first. It is best to obtain pre-approval for the amount you wish to finance. This will save you time and show the salesperson that you are a serious buyer. In the past it was better to obtain your own financing, but as stated earlier, there is a lot more competition now for car dealerships financing in house.

Know what your trade is worth. Get the Kelly Blue Book value online at www.kbb.com so you know what your car is worth. Also, fix your car up before you trade it in. Make sure to fix any little problems, remove everything unnecessary from the car and wash and vacuum it. If you can, it is always better to sell your car to an individual rather than use it as a trade. You will get more money that way.

Comparison shopping is also a big help so you know you are getting the best deal. Check out www.invoicedealers.com so you know what the actual invoice price of the car you want is. Do not be afraid to negotiate. Car dealers NEED your business right now. Get the best price possible.

Most importantly, have fun. Don't let buying a car be a hassle. Be smart about it and you will make a good decision.