Understanding Your Options for Car Financing

Understanding Your Options for Car Financing

Buying a car is not cheap that is why you have to determine if you are financially ready for it. Aside from the cost of the purchase, you should also take into consideration the running costs like gas, insurance, repair, and maintenance.

There are two approaches here if you want a car – pay in full or consider financing. If you want to buy car online through financing, it is recommended that you learn different options so you can decide which is suitable according to your situation.

To help you get started, here are the different car financial services you can consider:


You must know that most auto loans are considered secured loans. In a secured loan, the car will serve as the collateral for the debt. This means that if you default on your payments, the lender will repossess the vehicle. The vehicle will be sold to recoup the lender’s losses.

You will see that in this legal arrangement, the lender acts as the “lienholder” on the vehicle title. This will give the lender the right to possess the vehicle in the event of default.

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There are unsecured auto loans. This is based on faith since the lender is totally reliant upon the borrower’s promise to repay the loan. There are no collaterals made for security. While this sounds enticing, you should avoid it because these lenders often offer higher interest rates compared to secured loans.

Direct financing

Direct financing refers to banks, credit unions, and other online lending companies providing loans to purchase a car from a private party or dealership. This will enable you to get preapproved before shopping for a car.

Getting preapproved could give you a negotiating power at the dealership. This conditional approval includes estimated terms (like how much money you can borrow as well as the interest rate and loan term) that you can use as a reference.

Indirect financing

Indirect financing involves dealerships that act as middlemen. In this arrangement, the dealer will add a percentage to the interest rate offered by the lender. Many consider this because of attractive incentives like 0% interest and rebates.

In-house financing

In-house financing is also referred to as “buy here, pay here”. In this type of loan, the dealership can provide the loan but the interest rates are usually higher compared to other options. The good thing about in-house financing is that a car-buyer with bad credits can apply.

Lease buyouts

A lessee buyout loan allows the buyer to make the payments to the lender until the vehicle is purchased outright. This option is provided after the end of the lease contract.

Bottom Line

Car financing is not a bad idea especially if there is a necessity of buying but you have to consider several factors like the interest and the term. Ideally, you should find the lowest interest rates available. As for the term, you should avoid financing it longer than 4 years.