Let’s be frank. Cars aren’t cheap. A vehicle is an investment, whether it’s fresh off the lot or previously used. Car purchases are typically paid through cash, financing or leasing. Today OneRequest is breaking down top purchasing methods so you feel empowered when making your next car purchase.
Before determining how to purchase your car, you should figure out how much you can afford to spend. If you’re paying in cash, you need to stick to your budget since you’re paying the entire amount at once. If you’re financing, figure out the monthly payment that fits into your budget and what interest rate is reasonable based on the term of the loan and your credit history. Although we aren’t financial experts, everyone at OneRequest can agree that it’s important to be prepared when purchasing a car.
Paying in Cash
With this method, car shoppers simply pay the entire cost of the vehicle upfront in cash. There are numerous advantages to paying for a car in cash. One, you don’t have to worry about paying interest – i.e. you are only paying the actual cost of the vehicle. Two, you won’t have a monthly car payment. A cash purchase also allows you to completely focus on finding the right car for you. You don’t have to rely on financing approval from a bank or car dealership – you hold all of the purchasing power.
There are some thoughts to keep top of mind when you purchase a car with cash. Sometimes this makes you ineligible to receive certain deals or special offers from a dealership. Also, as mentioned before, cars are not cheap and it’s important to remember all costs associated with owning a car including property tax and insurance. Finding a car that fits your lifestyle, stays within budget and checks all of your boxes will leave you driving away feeling good about your purchase. Paying in cash is a great option for someone who has the capability to make one payment and doesn’t want to worry about financing.
Financing Your Car
Another popular purchase method is financing. You’re able to split the total cost of your vehicle into monthly payments, reducing your upfront out-of-pocket expenses. You can finance your car purchase through direct lending or dealer financing. Direct lending is borrowing money from a bank or finance company and agreeing to pay back the amount loaned, as well as additional finance charges over a period of time. Dealer financing is similar. You enter an agreement with the car dealership that you’re purchasing from and agree to pay the cost of the vehicle and any additional fees over a period of time. Financing through a dealership allows you to take advantage of a variety of financing options and special offers. We suggest you shop around for the best deal to see which credit terms match your personal finances.
Make sure to not focus solely on the size of the car payment, but the combination of the cost, the interest rate and the payment period. You don’t want to go upside down on your loan and end up owing more than the car is worth. We recommend considering a down payment which helps mitigate the risk of falling behind on payments. Financing makes perfect sense for someone looking to purchase a car and split the payments up over time.
Leasing A Car
Leasing a car is a bit different than the two purchase methods above, in the sense that you aren’t making payments to eventually own the car. When you lease a car, you pay for the right to drive it for a certain number of months and miles. Just like all things in life, there are pros and cons. Leasing a car typically means lower monthly payments compared to financing the purchase of a car. At the same time, you have to be aware of how many miles you are driving each year during your lease contract. An overage in miles might mean additional costs. This option is great for someone who wants a lower monthly payment, doesn’t drive too much each year and is ok with rotating through vehicles on a more regular basis. Remember, leasing a car is paying for the right to drive the car, not own the car.
If you’re looking for more information on purchasing or leasing a car, we suggest you check out the FTC’s website. It has great resources on a variety of topics surrounding the purchase, payment and ownership of a car. Ready to start shopping for your new car? Visit OneRequest. We make car shopping easy.