Financing is one of the most important steps in buying a new car, after all its the process which allows you to actually drive the car home. But financing can also be complicated, with many different ways of doing it. In this article we’ll go through the options and help you determine what’s right for you. 

Cash

The most efficient way to buy anything is with direct cash, there’s no interest on a cash purchase and no long term commitment to paying it off. Unfortunately the reality is that buying a car with cash is not a real option for the vast majority of people. And even if you can, there may be better things to do with that money like putting it into a savings account. 

Instead almost all financing will take the form of two different types of loans: car loans and personal loans. 

Car Loan

A car loan is the most common form of car financing, and it’s exactly what you expect, it’s a loan for the amount of the car that uses the car as potential damage, meaning that if you fail to repay the loan the lender can and will repossess the car. Generally these loans are negotiated within the dealership itself with the key points of negotiation being: Interest Rate, Loan Term, and Monthly Payment Amount. 

Your financial situation will determine which of these you’ll want to focus on, but as a general rule longer terms will mean lower monthly payments, but more money paid overall thanks to interest. 

Personal Loan

The second way to finance a car is with a personal loan from a bank or other lender. The primary difference is that this loan is not secured against the car specifically, and as such you can technically use the money from this loan on anything. This can save you a lot of time negotiating at the dealership as you only have to negotiate the price. 

If you have poor credit this may also be an easier option to apply for, however a personal loan will also come with a higher interest rate than the average car loan. Since personal loans involve a separate institution the process can often be longer than securing a car loan, since with car loans you can generally walk into the dealership and drive away with the loan on the same day.

Leasing

A wildcard option you may want to consider is leasing, where instead of taking a loan on the car, you take a rental type agreement of the car where you pay a monthly fee to drive the car for a set number of years, at the end of which you have the option of paying for the car outright or switching to a new model.