Financing Options

In much the same way you can get a loan to buy a house, you can also get a loan to buy a car. The thing to remember about buying a car is that it's not like buyingbooks, groceries, clothes, or other personal or household items. Not only do you need to carefully consider your vehicle choice, you need to fully understand your financing options if you do not intend to pay cash for the vehicle up front. By financing your purchase with a loan, you can pay the dealer, drive the car home, and start making payments to your lender. 

When trying to find the right way to finance your purchase, you have a number of options. It may be worthwhile to line up more than one financing option. That way, you can use one option as leverage to negotiate better terms for the other financing option.

Oftentimes your credit union or bank may be willing to provide you with a loan. If you choose this option, you can shop for a car first, find the one you want and then approach your lender for a loan that would cover the price of the car. Of course, you can also do it the opposite way: you can go to your bank and get approved for a certain loan amount, then find the car that fits your loan. Either way, you negotiate the terms of the loan separately from the purchase of the car. This can be helpful if you have a good relationship with a bank, or if you are a member of a credit union which might offer lower interest rates.

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Be aware that obtaining a loan from a bank or credit union may take away some of your negotiating power on the price of the car, because the dealer makes money on selling the car, and on financing the car.

A common option is to obtain financing through the dealer - known as an "installment sale ". Usually a dealer will have an ongoing relationship with one or more finance companies and banks that buy vehicle installment sale contracts from the dealer. An installment sale is a sale in which you promise to pay the seller for the car over time in installment payments, usually by making monthly payments. Because you are paying for the car over time, the installment sale contract will contain a finance charge for the privilege of paying over time. After the transaction is closed, the dealer usually sells these contracts to an independent finance company, a finance company associated with a car manufacturer, or to a bank or credit union.

Another option to obtain the financing to buy your car is to use financing offered by the dealer where the retail installment sale contract stays with the dealer. These dealers are traditionally called "buy here - pay here " dealers. In other words, you buy the car at the dealer and pay for the car at the dealer each month or week. These dealers can be particularly helpful if you have damaged credit, and will often work with you to create a payment schedule that works with your budget. Again, you can still negotiate the terms of your contract.

Finally, many finance sources have online sites that provide information about their financing products and allow you to obtain approval for financing.