When we are going to buy a car with financing, we are carrying out a purchase operation that usually ranges from €5,000 for a used car, to 70 or 80 thousand for a new vehicle. Given the investment to be made, it is easy for us to consider financing the operation through a loan or a lease, depending on our possibilities.
Types of Financing
When buying a car, we can normally choose between seeking financing with a personal loan at a bank or through the finance company or dealer where we decided to buy the car.
If we choose a personal loan, then we will be choosing to go directly to a bank or a financial institution, or a credit union. In this case, what we are choosing is to pay the amount of the financing plus interest during the time that the loan is stipulated. When we close the purchase with the chosen car dealer, the loan obtained is used to pay for the car. The advantages of a personal loan are:
- The opportunity to compare, since you have the possibility to search, compare and directly negotiate the credit terms with several different entities before committing to the purchase of a car.
- There is a better knowledge of the terms and conditions of the loan since before going out to buy the vehicle, we have closed the loan, we will be adjusting more to the final price of the car.
Financing through the dealer
If we choose financing through the dealer, —something common when it comes to financing a car— you and the dealer will have to formalize the contract based on the car that is purchased, and usually the down payment, the amount to be financed, and the interest established in the purchase of the vehicle.
The concessionaire could retain the contract and finance directly, but the most usual is to carry out the operation through the bank, financial entity, or credit union that is in charge of managing the account and collecting the payments. Financing the car through the dealer also has its advantages:
- Multiple financing options. The concessionaire, by carrying out a greater volume of operations, usually has a relationship with Banks and Finance Companies that will sometimes allow them to offer better options than negotiating directly with the bank or financial institution.
- Special financing. Sometimes there are dealers that can offer some programs sponsored by the vehicle manufacturers or programs with low-interest rates or even offer incentives for buyers. These programs may be limited to certain vehicles or have special requirements, such as a higher down payment or a shorter contract (36 or 48 months). To participate in special financing programs it is easy for them to demand more guarantees.
- Convenience. They usually have more extended opening hours, so it is easier to solve all the management and administration from the same place than to go around registering, managing, and resolving all these aspects in an easier way.
Remember: Shop and compare before deciding to buy or lease. Evaluate the various possibilities from different dealers and from various financing sources, including banks, credit unions, even finance companies. The best way to find the car and the financing that most interests you and, above all, that best suits your needs is to search and compare before buying.
What to consider before financing a car
Review the legislation well in terms of financial conditions
Take a good look at the advantages that financing the purchase of a car can have with a lease or with a loan. Especially if it is a company since this can have specially advantageous conditions in the purchase process. It is also good that you know all the advantages and obligations that you are assuming if the purchase is made through a lease.
Study well how much you are going to invest in your car each month
Before financing or leasing to buy a car, you should study your financial situation well. Apart from the financing, which will be a monthly fee, you must take into account the cost of maintaining the car, such as fuel costs, tolls, etc… be sure that you can meet the monthly expenses generated by a car. Decide to finance a car or lease when you are clear that you can assume this new obligation. It is also important to calculate the total cost of the purchase or lease.
The only appropriate time to acquire new debt is when you spend less than you earn. Having extra debt is not going to help us save for special situations or if we have other priorities in life.
If once you have studied this topic since not all cars cost the same to maintain if you want to finance the operation, you must take into account what you will pay each month. This amount will depend on several factors:
- vehicle price
- Initial delivery at the time of purchase
- applied interest
- Loan time.
When you negotiate financing or leasing, you must be clear about the monthly amount to be paid. There are multiple templates on the Internet where you can perform these calculations. The website of banks and financial entities is a good place to locate these queries; in some, you will have to be a customer or be registered to be able to consult them. If you usually work with a financial institution, you should also check with them, but do not consider it the only option.
An important way to reduce the monthly amount to pay is to save a little for a down payment or to trade in a vehicle as part of the payment. This will reduce the amount to be financed and therefore reduce financing costs.