New cars can be acquired through car finance, this involves you getting a loan for obtaining a car. There are different options available depending on your need. Car finance lets you purchase a car without the financial burden of paying at once and directly out of pocket.
One of the main challenges of purchasing a car is the high price often associated with getting the car, sometimes the cost of a car can add financial burden or strain to individuals. However, there are other means of acquiring a car that takes away the financial burden of paying at once or directly out of pocket.
Getting finance to purchase a car
Before you can obtain car finance, there are certain requirements to meet, first, it is important to have a high credit score, this allows the lender to be able to approve your car finance request. You can calculate your credit score yourself, there are quite a several online tools that can assist you in calculating your scores.
Your financial status should be able to allow you to make the monthly repayment as well as cater for your monthly expenses, you can do this by making a budget. You should only take car finance when you can afford to make a down payment, sometimes saving for a down payment is usually advised as it helps in reducing the cost you need to finance a car.
There are majorly two ways of financing a car. The two financing options are:
A personal loan involves you obtaining money directly from the bank or any other financial institution that can serve as a lender. The loan obtained from a bank or finance company is paid back with interest over a specified period.
There are criteria set by each financial institution to give a loan, once you meet up with the criteria, you can be able to access the institution’s finance option. If you are going to use direct lending to finance a car, you should make the following consideration.
- Evaluation of lenders: An evaluation of several lenders should be done to compare different credit terms and decide on which one suits you better.
- Advance credit term: It is advisable to have a preapproved credit term from the financial institution or lender, by knowing in advance the loan terms like the interest rate, length of term etc. having this knowledge can help in negotiating a better deal with the car dealer.
Financing through a car dealer
Car dealers can help in securing a loan for individuals looking for a car finance option, if you are looking for a means of financing your car purchase you can consult your local car dealer. A car dealer can help in financing the purchase of a car, this means of financing is often much easier. A contract is created between the car dealer and the buyer which contains the type of car to be purchased, the period required for repayment and the interest to be accrued on the loan.
This type of model involves the car dealer securing a contract from the bank or any financial institution that will service the contract account and receive the repayment. The benefits of using a car dealer option to finance your car are:
- Ease and Convenience: A car dealer affords you the ease of getting both the loan and car at the same place. You pick a car model and get the finance for it right from the dealer’s store without waiting for a financial institution to agree to your terms first.
- Financing Option: Car dealers have a huge presence in the automobile industry as well as with financial institutions. This makes a car dealer a great option, to recommend different loan plans to finance your choice of car.
- Incentives and Discount: Due to the direct relationship between a car dealer and a car manufacturer, a car dealer can offer manufacturer-sponsored discount or incentive programs for buyers. Such a discount often assists in reducing the cost to pay over your car loan.
Selecting the best financing option
It is important to select the best financing option, making the best financing choice for a car does not always come easy. It involves comparing different terms offered by different creditors or financial institutions. This comparison is important to decide what plan best suit your needs and current financial situation.
Different creditors offer various terms and condition to the repayment of a loan, take the time to understand the terms and conditions as well as the total cost attached to the loan. The repayable amount for a car loan depends on the following:
- Cost of the car: Car models play a significant role in determining the cost of such a car, and this also determines how much is obtainable through the loan. Most loan facilities often have a maximum amount permissible for purchasing a car.
- Annual Percentage Rate: This is the amount that will be repaid in addition to the initial cost of the loan obtained. This rate varies from one creditor to another and is negotiable. It is advised to go with a creditor that has a lower annual percentage rate, this lessens the strain of repayment.
- Duration of Credit: Length of repayment can be as high as 5-6 years, having a longer length of repayment reduces the amount that is to be repaid monthly. However, the longer the duration of repayment, the higher the rates to be charged.
Documents needed for obtaining car finance
There are certain requirements set by different creditors before agreeing to car finance.
- Personal details: The information contained here should be able to make the individual applying identifiable. The details usually include name, date of birth marital status, residential address etc.
- Employment details: The employment history shows the work history and the ability to earn money through employment. It is important to have the employment history of a person applying for car finance, this allows the financial institution to judge the ability to repay loan obtained.
- Bank details: Supplying bank details goes in showing the financial worthiness to be able to access a loan as well as repay the loan within the specified period.