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Admit it. We are a nation of car lovers. No matter how aware we are of the pollutants they emit into the atmosphere, in 2004 we purchased over 7.6 million brand new cars in the United States alone! But just how do we finance our love of the automobile? Let’s look at three auto financing options that are available to us. 1. Pay cash

Of course we would all love to pay cash. This means that you pay nothing more than the sticker price on the car plus any taxes and registration costs. Unfortunately, many of us simply can’t afford to do that and have to source other forms of auto financing.

2. Take out a loan

It is estimated that seven out of ten new car purchases are made by using some form of loan. Most of these will be financed by using a traditional auto loan.

Auto loan

You should organise your auto financing before even venturing on the forecourt of a car dealer. There are many banks, credit unions and auto loan specialists around that will be able to pre-approve you for a car loan.

If you don’t, car dealers will try to tie you into their financing plan. This may have horribly expensive car loan interest rates and lengthy terms on the loan. This may give you low repayments, but you will have lots of interest to pay for many years to come.

There are many manufacturers and dealers offering 0% auto financing options but beware! Many of them are only offered to clients with excellent credit histories and the interest is hiked up for the rest of us.

Home equity loan

A home equity loan or line of credit is another good source of auto financing, as quite often these can have low interest rates and good repayment terms. You just need to make absolutely sure that you can afford the payments as these are secured loans and you will be putting you home at risk if you default on the loan.

Personal loan

Again, a personal loan can be a good source of auto financing as many companies that offer such loans are not interested in what the money will be used for, just as long as the customer can repay. However, an unsecured personal loan may have a higher interest rate than an auto loan so you should always conduct a comparison. Use an auto loan calculator!

3. Auto lease

This is another method of auto financing. Where an auto lease differs is that you don’t actually pay for the car outright, you just simply pay for the amount that the car depreciates in value during the period that you drive it. Of course, you don’t get to own the car, but it does mean that you get to upgrade to a newer model regularly. The best models to lease are the ones that depreciate in value the least and you should investigate this before considering leasing as an auto financing route.

This Financial Services article was written by David Siu on 8/26/2006

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