For one to buy a vehicle, you have to consider the finance. Automobile purchase has led people to look for ways of obtaining finance. Borrowing of money has resulted in analyst cautioning that a credit crisis may be looming on the horizon and could affect the economy.
Financing a vehicle can be categorized into two options. First, there is the direct lending and second is dealership financing. In direct lending, you get funding directly from credit unions or financial institutions such as banks. The advantage of direct lending is that you will have time to compare the credit terms of several lenders before you buy a vehicle. It will also ensure that you have your credit terms at hand. By getting the cash before spending is a plus as you can budget well and make the right choice.
In dealership financing, you obtain the money from the dealer. You enter into a contract with the dealer where you get the vehicle and promise to pay after a period of time. The seller will retain the contract and sells it to an assignee (financial institution or a credit union) that services and collect your payments. Its advantages include convenience as it can happen anytime. The dealer will offer a range of financing options as the dealer has connections with banks and financial institutions.
There are several things you need to know about vehicle financing. Below are some of the factors;
1. Understanding the federal and state laws.
Federal and state laws affect vehicle financing. It mostly affects the financing positively, and they give you information that helps you negotiate a better deal. It enlightens you about the financing process and your rights. To be on the safer side, familiarize yourself with laws that deal with vehicle financing and leasing.
- Credit practice law- in this type of act a creditor is required to give a written notice to the borrower about their liability if they fail to pay. This bill prohibits the lenders from adding charges and using contract act that is unfair to the consumer.
- Fair credit reporting Law- in this type of act ensures that the customer is given a credit report annually. It gives the customer the right to protest in case the credit files are inaccurate or incomplete.
- Equal credit opportunity act- ensures that you are not discriminated according to the gender, race, religion or marital status.
- Truth in Lending Act- this act provides that before you sign an agreement a proper written term is stipulated.
2. Evaluating how much you can afford.
Before financing a vehicle, you should check if you have enough cash to fund your living expenses. After that, you should have in mind that your vehicle financing depends on factors like Annual Percentage Rate and the price of the car. You may require a Monthly Spending Plan Worksheet for this.
Take on additional debt if and only if you take home more than you spend monthly. Consider priorities first before adding other debt. After purchasing the vehicle, ensure that you trade in it. Try and make it a business venture so that you can take care of your down payments. If the value of the vehicle at that moment is less than the cash you owe the vehicle, it means that you are running on negative. This should be a consideration when planning on making it a trade-in.
For more information about evaluation, you can visit the Auto Trade-ins and Negative Equity.
3. Know your monthly spending.
First, consider the cost involved. Knowing your savings commitments and monthly spending will make the budget more acceptable and realistic. Know your current money situation. Record the amount of cash that you take home after taxes and deductions. Subtract all the money you require for monthly expenses and saving goals. The remaining balance is what you invest in the vehicle financing. Have a plan for the adjustment regarding credit obligations and expenses. Be flexible to adjust any costs that will go up or down when getting the vehicle such as insurance covers and its maintenance.