Financing Options for a Pre-Owned Vehicle

Do you need assistance on figuring out the best way to finance your pre-owned car or truck? This article has a few suggestions and guides showing your vehicle financing options to help you make an informed decision on which one is the best option for you.

First Decision, Cash or Credit?

When purchasing a used car, the first decision is always cash or credit. Understand that paying cash is almost always the best choice for any car purchase as it's a depreciating asset. This is also because consumers who finance their car end up paying more for their loan because interest and finance charges add to the total price of the car.

Second Decision, Buy or Lease?

The sad fact is, most people purchasing a vehicle are not in a position to pay cash for the vehicle purchase. So the options then fall to either buy or lease the car. The benefit to leasing a vehicle is that the payments are usually less than on a purchase contract. And because the terms are usually shorter, between 12 and 36 months, you get the added benefit of getting a new car every couple of years. Leases usually require very little in the way of down payments, that means that if you are a less established car buyer, you can get a reliable vehicle for less up front cost.

The largest problem with leasing a vehicle is that you will always be financing a vehicle and never own it. If you do decide to purchase the car when the lease is up, you will pay more than if you had elected to finance the car as a purchase.

Leases also have limitations on how the car can be used. For example, the typical lease has limitations on the amount of miles a vehicle can be driven every year (typically between 12 and 15 thousand miles). If you go over these limits, you face expensive fines.

The Final Decision, Private or Dealer Generated Financing?

Even though leasing is an effective way to save money on a payment, deciding to finance the car as a purchase is typically the better financial decision. But even when you decide to finance to purchase instead of lease, there is still another decision to make: Choosing between dealer supplied financing and getting your own loan through a private lender.

The benefits of dealer offered financing is the convenience and ability to qualify people with less than ideal credit. This is due to the fact that a dealership does everything in their power to not allow financing to stop them from being able to make a sale.

However, if your credit is decent and you are looking to save even more money, deciding to go to your own bank or a credit union is a viable choice. Banks sometimes offer lower rates than the dealer depending on local specials. This would add up to savings over the term of the loan.

Understand that when debating your options for financing your car, no one choice is the best choice for everyone. It is vital that you weigh all your options and compare the benefits and drawbacks to each of your options and decide which loan will best fit your lifestyle.

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