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If you're planning on getting a car financed by an auto dealer, you may want to know what the definite advantages and disadvantages of taking this route because dealerships function differently than independent financial institutions.
Let's look at some advantages and disadvantages of taking the auto dealer financing route. This way, you can decide for yourself if this the right choice for you.
Advantages of Dealer Financing
There are a number of advantages associated with dealer financing. Let's look at a few:
- Benefit from financing deals. One benefit of taking advantage of dealer financing is being able to benefit from a low initial interest rate. For instance, the manufacturer may offer 0% financing for the first year. Of course, you need to read the fine print with these deals, but if all looks good, you're in business!
- You're not bound to this agreement. Actually this is true of any financing agreement that results in you buying a car. While you are bound to the agreement in the sense that you are expected to pay your car notes every month, you can always refinance if you become unhappy with the deal you struck with the auto dealer.
- Auto dealers aren't looking for good deals for you. One reason that you might avoid dealer financing is because the dealer's agenda is to have you pay as much as possible for a vehicle, not get you a good deal. So often times, you find yourself led to a vehicle that may be too expensive for you because the dealer wants to work out a "deal" that will either have you pay for the car for 6 or 7 years, or your interest rate could go up after a year or two.
- Hidden fees might apply. Another disadvantage of working with an auto dealer for financing is that they are in cahoots with their own finance companies to make money. This means, not only might you be told you qualify for the lowest of a bunch of really high rates, but the dealer may throw in some additional hidden fees in your finance contract. It's important to review everything you sign thoroughly to make sure this doesn't happen.
Now that you know some of the advantages and disadvantages of dealer financing, you have to decide whether it's for you. The best way is to explore all of the financing options out there. Then you'll know you're getting the best deal for your car.
There are a lot of financial mistakes you can make when taking out a new car loan, but one of the biggest out there is usually associated with leasing a vehicle. Leasing cars can be pretty enticing because they require no down payment, and usually offer a lower monthly payment than purchasing a new car. However, it's usually for the best that you don't travel this route.
Reasons to Avoid Leasing
- Early return penalties. When you purchase a new car, you very often don't want to keep it for the length of the loan, which is fine when you're buying a car. But if you lease it, you may have to pay a high penalty when returning it early.
- Mileage limits. Most people don't know off the bat that leasing a vehicle comes with the term and condition of staying within a certain number of miles each year. Not much different than the mileage restrictions you might see on a rental car, if you drive outside of these mileage limitations, you're setting yourself up for a disastrous penalty.
- You can't keep the car. Unless you set up an agreement to purchase the car after the lease ends, you have to give that car back - and in good condition. So you've basically paid on something you can't own - not the best financial move in the world.
Other New Car Mistakes
Another major financial mistake that some new car loan recipients make when buying their vehicle is taking out a loan they simply cannot afford. While the dealership may take some responsibility in checking out what you can afford based on your income, only you really know what you have to pay with your check. They focus more on monthly payments, which you should avoid. If you don't have a huge cushion after paying your car note then it is simply too high of a price.
Also, if you take out a super auto loan - one that extends over 6 or 7 years - you might be setting yourself up for a major financial mistake. It's not easy to predict what your financial situation will look like that far out, which is why some experts suggest staying away from these types of loans. However, because they present much lower monthly payments they can be hard to resist. So travel this road with caution. You don't want to get stuck with an upside-down loan, or lose your job leaving you with nothing to make your payments with. You might also be paying much more in interest over the course of the loan than the car will be worth.
If you want to avoid making financial mistakes when getting a new car loan then try to avoid what's mentioned above. By making good choices when you secure your loan, you can feel great about the new car you've purchased.
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