Vehicle Financing: A Rundown

Auto financing isn’t limited to one type of transaction. Before you finance your new vehicle, here are the different avenues you can take to seal the deal.

Direct Lending and Dealership Financing

According to the Federal Trade Commission the two types of financing available are dealership financing and direct lending. In direct lending, you’re getting the loan from a bank, credit union or other private lender. Under dealership financing, you finance through the dealer, who usually assigns the debt to another party, such as a finance company.

Vehicle FinancingDirect lending is often more inconvenient than dealership financing and may take longer to obtain, but you have the advantage of rate quote comparisons. You’ll also know what type of terms you’ll have and your spending power if you get approval before hitting the dealerships.

Dealership financing, by comparison, is often a faster transaction and may expose you to a wider range of financing options through the dealer’s network. The dealer may offer special incentives, such as a low rate or manufacturer’s rebate, to customers with excellent credit.

Shop around between dealers and lenders to help you decide which way to go. The overall cost of the loan, including the interest and other fees, should be a primary consideration. Consider other factors, such as the loan term, as they impact your monthly payment. You shouldn’t take a payment you may struggle to make each month in return for a lower interest rate, as you may end up losing the car.

Selling off your current car may help you cover part of the cost of a new vehicle. Explore different sale methods to ensure you’re getting the best price. A dealer may offer you additional money on a trade-in to encourage the new sale, and you can use websites such as to sell it quickly.

Lease or Finance?

If you finance, you’re buying the car and will own it once the loan is paid in full. Under a lease, you pay an amount per month to use the car according to the lease terms and aren’t entirely responsible for repairs. You’re allowed to put so many miles on the vehicle during your lease term, but going over that mileage may cost you additional money at the end.

Your lease will have a buy option that you may choose to use at the end if you want to keep the car. If you don’t, you usually must pay the end of lease fee shown in the agreement plus additional charges, such as cleaning. Ending the lease early can cost you substantially in early termination fees.

As with a financing agreement, review the offered lease terms carefully so you know what you’re getting into. Since leases often allow the dealer to charge for damage beyond what’s allowed in the contract, leasing may not be for you if you’re a little rough on your car. Review all the lease terms with the dealer before signing to confirm you understand all the terms of the deal.

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Published on: April 15, 2014

Filled Under: Auto Tips and Guides

Views: 1731

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