A new car can be a significant investment. Many vehicles cost in excess of $30,000, an amount that could put a strain on your budget.
As a result, many car owners wish to finance their purchase. Thankfully, there are many options available for car buyers looking to finance today. This article will outline some of the advantages and disadvantages of using dealer financing or bank financing.
Bank Financing
Bank financing is the most traditional financing option for people who are buying a new car. Many buyers are familiar with using the services of banks to help them get the funding they need for their cars. These services usually require that buyers have good credit scores and that they can prove their source of income. Often, banks will require buyers to submit extensive documentation about their income. This can include providing pay stubs, tax forms, and personal identification. Banks also run credit scores to ensure that potential buyers are qualified for purchases.
Advantages of Bank Financing
Bank financing is advantageous for buyers who have established credit scores. Banks are usually willing to make loans for car buyers at affordable rates that are just a couple percent above the prime rate. Bank financing also offers car buyers the flexibility to work with their preferred lender to make payments easier and consolidate multiple loans into one.
Dealer Financing
Like bank financing, dealer financing also requires potential buyers to have existing credit. However, dealers are often willing to work out better credit deals to fit the specific needs of the buyer. Since the sale depends on their ability to deliver financing, dealers usually offer a wide range of financing options to fit specific needs. For buyers who have low credit scores, dealers usually compensate with increased interest rates. Many dealers are also willing to loan out their cars if the buyer can provide a substantial down payment.
Advantages of Dealer Financing
Dealer financing is advantageous to buyers who either have poor credit scores or can find dealers that are willing to offer credit at outstanding rates. Many dealers are willing to make loans to individuals who even have no established credit. Many dealers also take trade-ins as down payments for a new vehicle purchase. Finally, many dealers routinely run sales that offer zero-interest financing in exchange for purchasing their cars.
Making a Decision
The right financing for a specific situation completely depends on your finances. Car buyers that have established credit should most likely seek to work with a bank or other financial institution to help them with a car loan. However, those with poor credit should consider working with a dealership that assists buyers with low credit scores. Additionally, a buyer should always be looking for dealers that offer great rates on financing; they can be opportunities to save money on a new vehicle purchase.
