McMinnville Auto Sales LLC

Car Finance Guide_ What to Know Before You Finance or Lease Your Next Car

Prior to your first visit to a dealership, it’s perfect to work out exactly what you’re hoping to accomplish. Keep in mind what type of vehicle you need, how much your pocket can afford to spend, and how much cash you have available for a down payment. These are not questions you want a savvy salesperson to answer for you while you’re deciding to buy something.

Another mandatory question to ask yourself ahead of time is whether financing or leasing is the right move for you. Every option has distinct pros and cons, depending on how you’ll use your new vehicle.

Should I lease or buy a car?

While leasing often offers a lower monthly payment, it comes with mileage limits that some drivers are unable to fit into their lifestyles. Estimate how many miles you drive per year. If it’s more than $15,000, financing is likely a perfect choice.

If you drive less than that and are prone to wanting a new car every few years anyway, leasing can be an accurate option. Remember that maintenance and repairs are something you will be responsible for, and at the end of the lease, you return the car with some fee in some cases rather than extract equity by trading it in.

Auto loan financing gives you more freedom because you own the car. You can keep it for as long as you want, drive as far as you want, and even customize it however you want. But fitting a huge payment into your pocket might be a squeeze. If this is the scenario, you could prefer a budget-friendly option to a vehicle you would have otherwise leased or look for a used or certified pre-owned version.

Borrowing Smart

Even in the days of high inflation and soaring interest rates, an auto loan is still the most secure option for securing a new car for various buyers. There are still deals to be had, but don’t expect to see any 0% percent offers out there right now. Low-APR specials typically show up as short-term 3- or 4-year loans at 3.9 to 4.9 percent rates. For most people, the requirement for a lower monthly payment may force them into a more traditional loan of 60 to 72 months, which means applying through a bank. 

But if there is need it is sure there will be greed there, and you’ll find it inside dealership finance offices. Are you aware that dealers are compensated if they sell you something at a higher rate than the bank has approved? Knowing your worth is the best way to protect yourself from such trouble.

Before you go shopping, clarify with your bank and research what interest rate you’d be approved for. Unless the dealer can let you know that rate, you know you have a fair financing deal, i.e., a lineup for you with a trusted financial institution you already do business with.

Long-Haul Loans

It is believed that some lenders are offering 84-month loan terms for new and used cars, and more and more borrowers are taking them up on it. That’s seven full years of making payments. Is it worth it? Not in most cases. While stretching out the length of period to pay for your new vehicle can give you a decently lower payment, it also means paying interest for an even longer period.

Also, prefer the fact that in those 7 years, your vehicle is likely to need some repairs and major maintenance. Unless you can guarantee you’ll have the financial stability to be able to pay a monthly payment as well as a high-range and potentially unexpected repair bill, prefer selecting a low-budget new car or a used other option so you can afford the payment of a shorter-term loan.

The next choice would be to lease instead. If you’re not a person who can drive more than 15,000 miles per year, a lease might be a decent choice to get the new car you want at a price that fits into your budget.

What If I Have Bad Credit?

Past credit mistakes trouble you and make vehicle purchases more expensive. Subprime auto lending is one of the most popular practices too, with NerdWallet’s idea that interest rates on used-car loans have been known to exceed 21% APR for borrowers whose credit scores are below 500.

If it’s possible to delay your buy and focus on improving your credit by paying off old debt and disputing inaccuracies on your credit report. NerdWallet suggests paying precise attention to make sure you’re not using more than 30% of your available credit on any of your accounts. Pay bills on time and in full, and over time, your score and record will improve.

Emergencies persist, though, and if a new vehicle purchase cannot be delayed, consider getting a co-signer to help you secure a lower interest rate now.

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