Understand the Basics about Auto Loan Finance
A Credit Article Contributed by Brandie King
Auto Loan Finance: Three Different Types of Financing
There are three different auto loan finance options for obtaining your new vehicle. The first is an auto loan, the second is leasing the vehicle (which is basically renting it), and the third is for you to pay cash.
If you decide to lease the vehicle there are a few things you need to watch for. Make sure you find out what the yearly mileage limit is. If the yearly mileage limit is too low compared to what you normally drive in a year then ask for a larger mileage limit. This will make your monthly payments a bit larger but will cost less in the long run. You should also read your loan contract to see what the dealer's definition of "Excess Wear and Tear" is. If you aren't sure then ask the dealer.
Something else that you need to watch for are the Early Termination Charges. These are fees that you are charged if you turn the vehicle back in to the dealership before the loan term is over.
Auto Loan Finance: How are Monthly Payments Determined?
First of all, most auto finance loan terms are for a length of three to five years, meaning that you will have from 36 to 60 monthly payments. The longer the length of the loan term, the lower your monthly payments will be. The larger the down payment, the lower your monthly payments will be. The amount of your monthly payments is based on the interest rate, the length of the loan term, and the amount of your down payment.
Auto Loan Finance: Advantages of Leasing
When you decide to lease your new vehicle you will have lower monthly payments and a lower down payment. Also, with a three year lease, the factory warranty will cover most of the repairs on the vehicle, which means lower repair costs for you.
Auto Loan Finance: Disadvantages of Leasing
On the down side of deciding to lease your new vehicle, you will not own it at the end of the lease term. You will have a limit on how much mileage you are allowed to put on the vehicle each year before you will be charged excess mileage fees. There is also a fine line between what is considered to be excess wear and tear. What the dealer considers excess wear and tear and what you consider excess wear and tear might be two wholly separate things. If your driving needs change before the end of the lease term and you need to get a new vehicle, you will be charged early termination fees.
Auto Loan Finance: Advantages of Buying (Getting an Auto Loan)
If you decide to buy your new vehicle outright you will have the gratification of actually owning the car and will be able to do what you want with it. In addition, you will not have an excess mileage penalty and will have the flexibility to sell the vehicle whenever you choose.
Auto Loan Finance: Disadvantages of Buying
You will have higher monthly payments and a higher down payment as well. Also, you will either have to suck up the cost of any required repairs after the warranty runs out or you will have to purchase an extended warranty.
