Financing a car: What does it mean to finance a car?

finance a car

Whether you decide to buy a new car or a second-hand one, the possibility of financing it is always there. Many drivers make use of this alternative, either because they have no other option or because they prefer to take advantage of the advantages associated with financing a car.

The financing model of the vehicle will depend above all on its type, the type of distributor, and the conditions of the used or new car loan. 

What does it mean to finance a car?

As almost always happens when making a large investment, credit companies, banks or car brands themselves grant help to the user at the time of purchase, in order to encourage the consumer to purchase the product. However, this transaction is not usually free of interest or small print, so it is convenient to compare and calculate which is the best financing for your car available in the market.

Car financed or cash?

The big question that many drivers ask themselves is whether it is better to finance a car or pay cash. Given that this last option has been for years the most standardized way of acquiring a vehicle, today it is difficult to find sellers, especially if they are dealers, who are willing to sell the vehicle accepting a single payment.

The reality as to whether to buy a car financed or in cash is that financing can provide more advantages, especially since other products are usually added, such as compulsory maintenance of the vehicle for a certain time, comprehensive insurance from the manufacturer, etc. All these details play an important role when choosing one option or another.

As for the difference for your pocket, with the financing, you have to pay an interest clause, and in some cases, depending on the seller, also an entry. Today it is practically impossible to buy a financed car without interest to pay, unfortunately. Users looking to acquire financed cars without a down payment will have a difficult time, since demanding an advance payment is a way that sellers have to ensure that the person can afford the acquisition of a financed car without an endorsement.

Even so, the particular conditions, both of the seller and the buyer may vary, so we advise you to consult these details before the transaction.

Where to finance a car?

The most traditional alternative has always been to request a loan from a trusted bank, but today there are many other credit institutions, which have arisen in part thinking of those users who seek to acquire financed cars without banks involved.

Although you associate the purchase of a second-hand vehicle with a cash payment, financing a used car is totally possible and also offers certain advantages depending on your personal circumstances.

The most important thing when financing a used car is to identify the entity with which it is best to do it: through the dealer, with a loan through a traditional bank, with a private loan company, establishing a rental contract with an option to buy, etc.

Used cars financed at the dealership

If you buy your second-hand car at a specialized dealer you can benefit from the advantages of financing the car at a dealer through two fundamental models:

  • Loan: the dealer, or more specifically, the financial institution with which they work, grants you a loan and you return the borrowed money as agreed in the contract, paying the corresponding series of interest. These payments can acquire different modalities, depending on whether the payments are fixed, variable, or flexible.
  • Rent with option to purchase or leasing: monthly payments are lower than with the previous model, at least over a period of time pre-established by the dealer. After that time, you will have the possibility to keep the car, pay the remaining installments (much higher), change the car, or return it.

Finance a used car with a loan

Although requesting a specific loan for the purchase of a car is a purchase option also available for those who are going to buy their car at a dealership, after issuing a detailed estimate, it is more common for those who seek to finance a second-hand car from a particular.

In this case, you should be the one in charge of finding the most advantageous financing, consulting different entities, and comparing conditions and interest rates. You can also use calculators to find out how much it would cost to finance a car online and obtain an estimate of the possible loans from each financial institution.

Finance a used car with a private lender

Private lenders are those that are not affiliated with financial institutions, so they are not governed by the same rules as a conventional bank. Of course, their commissions and interests are high, since they are higher-risk operations, and often require a guarantee or endorsement. If you want to explore this option, it is important that you carefully review the conditions of the loan, interest, and flexibility of the installments.

What problems can arise in the financing of a used car?

Depending on the way in which you want to finance the purchase of your second-hand car, there may be a series of inconveniences that you should consider carefully according to your personal circumstances. For example, in the case of second-hand cars with financing without a down payment, or if you intend to finance a second-hand car without a guarantee.

How to finance a second-hand car without payroll

The payroll is one of the best guarantees that the bank has to know that you will be able to return the money. If you do not have a payroll, you are not self-employed or you do not receive another type of regular income, such as a retirement pension, it will be very difficult for you to get a loan for a used car through a traditional financial institution.

You should consult your personal circumstances, and see what options to finance the car fit your case. Or opt for other financing channels such as private lenders or the payment of long-term rental installments with or without the option to purchase.

  1. Requirements to finance a car

Finally, it is necessary to meet a series of requirements to be able to access financing:

  1. Being over 18 years.
  2. Do not appear on any list of defaulters.
  3. Have a good level of income or at least have a guarantor with higher income than you who can take over the loan in case you can not afford it. Financing a car with a low payroll is not a very smart idea.

In short, it is important to be realistic when buying a new vehicle and adjust the options to your level of life and income, in order to avoid complications in the future

By aamritri

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