The best way to finance a new car depends on your financial situation, but fortunately there are a bunch of options. Everyone wants the best possible price, a low down payment and comfortable monthly bill when buying a vehicle, and dealers can usually take care of that for you. Problem is, not checking out the finance part of the process may result in you paying way more for that new car in the end.
Dealer financing is convenient and often chock-full of incentives. Low interest rates, rebates, cash-back and trade-in deals are all well and good, but these are marketing tools to entice you into financing through the dealer. Auto dealers can actually make more money on the financing than the actual profit the car, and you're the one paying the premium. Take a calculator with you, read all documents before you sign and ask questions if something doesn't make sense.
Financing a new car through your bank is cut-and-dry. You know exactly what you're borrowing and how much you'll end up paying at the end of the loan. There are typically no gimmicks, and you can get pre-approved for a certain dollar amount before you go to the dealer. You may end up with a slightly higher payment, but will usually pay less in the long run. The bank is only interested in getting their money back at the agreed interest rate and not in making extra profit.
Leasing can get you a more expensive car with a lower down payment and monthly bill, but it's really just a glorified rental agreement. With most leases, you'll have the option of returning the car or purchasing it when the lease is up. In the meantime you'll be responsible for maintenance and insurance, and will have mileage limits unless you want to pay extra fees. It's like having all the benefits and costs of ownership for something you don't own. However, leasing can make sense for some people because of the lower initial and monthly payments, especially if the car is used for business and it's cost can be written off your taxes.
Paying cash is a viable option for buying your new car, but if interest rates are super-low you may be better off investing the cash instead. For those who just don't want a car payment and feel better about owning the car outright, that's fine. Just don't clean out your CD savings, IRA or 401k to do it. You'll end up paying penalties and fees that may be as much as what you're saving by not going for a loan instead.
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