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Buying a car can be an exciting and stressful time. While choosing the type of car and features you want can be fun, figuring out how you’ll finance this purchase can be confusing. Knowing your financing options can really help smooth the process and save you money along the way.
A car loan is basically a personal loan that is secured by the car you are purchasing. Meaning, if you default on your loan payments the lender has the authority to seize your vehicle as collateral. You can get the funding you need through a bank, an alternative lender, or the dealership itself. Most lenders will allow you to borrow from 80% to 100% of the value of the car.
Repaying a car loan from a bank, alternative lender or dealership involves paying them regular payments plus interest over an agreed-upon period. Payments can usually be made weekly, bi-weekly, monthly, or semi-monthly depending on your lender.
A used car loan works exactly like a new car loan except it has some limitations. Used car loans typically have limits set against them as lenders and dealerships don’t want to loan an amount that is more than the car’s value. Why? Because from the lender’s perspective, if the vehicle you’ve secured the loan against depreciates in value far below the loan amount, the lender will lose money if you were to default on your payments. As such, the interest rate for used cars can be higher than a loan for a new car.
Whether you’re financing a new or used car, loan terms typically vary between two to eight years.
Auto refinancing involves replacing your current car loan with a new loan that has different rates and terms. You can choose to refinance your car loan by renegotiating the terms with your current lender or you can choose to switch lenders completely. Regardless of which way you choose to go, consumers typically refinance car loans for two reasons; to extend their term or to qualify for a lower interest rate.
When you decide to refinance your car, you basically take out a new loan to pay off the old car loan. The new car loan will then have to be repaid in installments with interest.
Generally, the auto refinancing term can be between 2 and 7 years.
The rent-to-own option is great for people with bad credit who are unable to get approved for a lease through traditional means. There’s no credit check, you just need a personal ID, proof of residence, and an income source. The rent-to-own option involves “leasing” a used car for a period of time. After this, you can choose to return or buy the car.
The rent-to-own option works a lot like a car lease where you make periodic installment payments over an agreed-upon time and then at the end of the term you have the option to return the car or buy the car. If you decide to buy, payments that were made for “leasing” can be used to cover a portion of the car. However, if you don’t have sufficient funds to purchase the car, you can opt to return the car instead. Payments are made directly to the dealership or car rental company rather than a bank or third-party lender.
Are not as long as leases, typically lasting 1-2 years.
Dealers typically offer in-house financing for cars that are older and have high mileage. These features make it an optimal option for people with bad credit. Instead of financing your car through a bank or a third-party lender, in-house financing streamlines the process by giving you the option to choose your car and pay for your car from the same place.
In-house financing works just like a regular car loan. You simply choose a car you like, the dealer will then finance the car for you after which you will repay them in equal installments with interest over a predetermined period.
Terms usually last up to five years.
When you lease a car, typically a new one, you have the option of returning the car or buying the car at the end of the contract term. Buying the car at the end of the lease term is what you would call a lease buyout.
When you lease you enter a contract where you make regular payments over the agreed-upon period. At the end of the lease, you can buy the car with a loan from a bank or third-party lender assuming you cannot afford the car in one lump sum payment. Whether you should buy it depends on the residual value of the car and how much you are willing to pay for it.
A leasing term usually lasts between 3-5 years.
There are a number of reasons your application may have been rejected. Here are some of the most common reasons you may not have been approved.
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