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You’ve found the car that makes your heart race by 120 beats per minute. Now only one thing stands between you and the car of your dreams: financing the purchase. In a perfect world
you’d pay the full price in cash without blinking. But if you’re like the seven out of ten car and truck buyers who don’t live in a perfect world
chances are you’d be paying for your car through one of several financing schemes.

Understanding the basics of each car financing option is key to choosing the automobile financing strategy that best suits your situation. Here is an overview of auto financing options that may be available to you.

Auto Loans from Lending Institutions

You can get a car loan from a bank
credit union
or other lending institutions. The car that you purchase will serve as collateral for the auto loan. This means that the lender can repossess your vehicle if you default on the car loan. Auto loans are a popular car financing option because they generally offer reasonable interest rates and are relatively easy to get.

Two factors are likely to affect the total cost of the car loan. One is the term or duration of the loan. Generally
the longer the term of the loan
the lower your monthly installment will be. But you’ll end up paying more towards interest and this will increase the total cost of the auto loan. If you can afford it
get a short-term loan. Your monthly installment will be higher
but you’ll be paying less money over all. The second factor that may affect the total cost of your car loan is your credit rating. Creditors with less-than-stellar credit history are usually charged a higher interest rate because of the elevated credit risk.

Dealer Financing

Like traditional auto loans
dealer financing is reasonably easy to get. Most dealerships have relationships with numerous lending institutions
so they can arrange car loans even for car buyers with blemished credit histories. To compete with traditional bank loans
many dealerships offer zero percent or very low interest on dealer loans. However
such loans are available to car buyers with stellar credit ratings. Consumer experts advise car buyers to get pre-approved on an auto loan from a bank or credit union before approaching the dealership for possible financing. By getting loan pre-approval from another lending institution
a car buyer gets the upper hand when bargaining for a lower rate on a dealer loan.

Home Equity Loans and Home Equity Lines of Credit

If you own a home and have accumulated substantial equity on your property
then you may consider getting a home equity loan or a home equity line of credit. Home equity loans are fixed or adjustable rate loans that you repay over a predetermined period. Home equity lines of credit are open-ended
adjustable-rate revolving loans with a maximum credit limit based on the equity of your home. Home equity loans tend to have lower interest rates than credit cards and other types of personal loans. Interest payments on home equity loans may also be tax-deductible up to a certain extent. Home equity loans and home equity lines of credit use your home as collateral
so make sure you are financially capable of paying the monthly installments if you don’t want run the risk of losing your home.

Credit Cards

A credit card advance or credit card draft from your credit card company can help you drive your dream car home. Like home equity lines of credit
credit card advances or credit card drafts are revolving lines of credit with variable interest rates. To entice existing customers to avail themselves of credit card drafts
credit card companies waive cash-advance fees
guarantee low rates during the initial period of the loan
or offer high credit limits. However
because credit card drafts are unsecured
they generally have higher interest rates than home equity loans
traditional auto loans or dealer loans. Financing your auto purchase through credit cards could also leave you vulnerable to hefty penalty charges if you make a late payment or exceed your credit limit.

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