The financing is the opposite of paying in cash. You donít have all the money now so you need to take a loan. You can take out a bank loan to finance your car but you can also get a loan directly from a dealership.
So you have three options:
- Buy the car (with an auto loan).
- Lease the car.
- Pay cash for the car.
Let's look in more detail at these three options:
Buy the car
If you decide to buy the car it will be yours when you repay the loan (unlike the car lease). If you buy the car from a big and well established dealership, you can borrow the money directly from it because it will probably offer fair rates for the loan. The dealers work with their own lending institutions and the procedure for taking the loan is practically the same as dealing with a bank. You will be asked to fill a credit application and a loan will be arranged depending on your credit score. The usual length of the car loan is between 36 and 60 months.
Lease the car
The difference between leasing the car and buying it with a loan is that when you lease it you just borrow it from the dealer and you have to return it at the end. All lease agreements come with an option to buy the car at the end of the lease period (again between 36 and 60 months) at a predetermined price called "residual value". After the lease is over if you believe that the car costs more than this predetermined value, you can buy it from the dealer and if it is selling for less you can just return it.
The lease monthly payments are generally lower than the payments on a loan because essentially you pay only for the depreciation of the car which of course at the end of the lease will be just a fraction of the initial price of the car. The lease terms require you to pay a certain sum upfront which is usually about 10% of the price of the car.
Pay cash for the car
Paying cash is the simplest option - you just negotiate the price and then pay it. Of course, you may borrow the cash from an outside source and appear as a cash buyer at the dealership. If you are buying a used car, paying cash is more common because of the lower prices and the fact that you can deal directly with the owner.