As you may have already realized, if you want to be a part of the growing number of car owners in the country, you have two choices available; pay in full or avail car financing. If you are one of the many though, the latter seem to be the only possible choice especially if you are considering owning your own ride within the next few weeks or months and your budget is not up for it. Knowing this is the program you are likely going to avail in the near future, you have probably asked yourself…
What exactly is car financing?
Since you are with GoDrive, it’s used car financing to be precise. For sure, you already have a general idea of what it is about because of a previous loan from banks, private companies, or individuals. But when it comes to information beyond the basic definition? Maybe you are not as familiar as desired and when it comes to buying one of the things that will have a great impact with your life, it never hurts to know more before taking the next steps.
“Car financing” is often interchangeably used with “Car loan”. Although the term is mainly used to describe the process of taking out a loan to get a car, there are also other forms of car financing. These forms include:
– Car Financing directly from Dealership
– Car Leasing
– Cash Financing from Banks/Private Loan Companies for a Car Purchase; Car Takeout
– Car Loan Takeout
With GoDrive, all of these are available except for leasing. When someone offers or if you see an advertisement that offers you a “car financing”, it is important that you know exactly what they are referring to. Of course, it’s also important you know what exactly each form of car financing means. Let’s discuss and compare them one by one.
Dealership Financing
This is a program where you form a contract with a lender that your dealer is in partnership with – banks for example. The dealership itself can also play the role of the lender.
In this program, you are basically just buying a car but with the agreement of paying the total price over a period of time plus interest. Usual payment term is 1 to 5 years.
This program might be the best for you if you are looking specifically for a less hassle process. The office where the car is at and the office where you are going to apply for a loan are located at one place and you will likely be designated with one contact person you can discuss the entire process with. All you have to do is browse, choose a car that is available for financing and the dealer will take care of the rest.
Car Leasing
Yes, car leasing is a form of car financing.
When you lease a car unit, you will only be paying a portion of that unit’s cost. In short, you are paying for your use of the car and not the car itself. Naturally, this means that your monthly payment for the car and the downpayment for it (if there’s any, that is) will be substantially lower since you are not really going to “buy” the car. A good consideration if your savings can’t quite cover the usual 10-30% deposit and your monthly budget is not up to the task of paying for a higher monthly amortization for a car loan.
At the end of the leasing term, there’s usually an option for the lessee to buy the car. This however, is not a very good financial decision, generally speaking as this is ultimately going to cost you more than if you decided to apply for a loan for the car to begin with.
If you want a car financing that will enable you to own a ride you can reliably use and has the potential to give you an early return of investment in the future, this is probably not the best choice for you.
Car Takeout
This is where a bank or a private financing institution of your choice buys your car for you, or rather buy a car that you can use but is technically theirs until you pay the loan in full with interest. This is very similar with applying for any loan like say, a personal loan. The clear distinctions however are;
– First, you have full control of the amount being leased as you are in control of which car you are going to avail. You will only get what you need.
– You will not have access to the money that will be financed by the loan company. Good for the client really as this removes the chance, no matter how small, for him to use the funds in things that are not for its intended purpose.
– You will have to spend some of your money for the downpayment of 10-30% of the total car cost. Money that was not financed by the loan company.
The advantage of going directly to a lender instead of availing the loan options from the dealer? For one, if you have a good relationship and credit record with your bank or a private financing company, you can easily avail for any of their special promos that are associated with car financing. Your approval is also easier since you are a trusted customer and they already have a lot of the needed documents and client details for the loan. This makes it a less time-consuming and a potentially cheaper option for you.
Car Loan Takeout
There is car take out, then there is car loan takeout. Also known as car refinancing
Car takeout is the process by which a new lender pays for everything that a client owes to his initial lender — the principal amount, the interest, the processing fees, everything. This, in a sense, transfers the loan to a new lender and will effectively extend the overall payment term which will also decrease your monthly amortization.
More about car financing
Interest rates for car financing vary widely from the range of 5.5% to above 30% depending upon the loan term. Be mindful of the often ignored processing fees, though. Some companies may display low interest rates to hook people only to surprise them with hidden charges and processing fees later.
Overall, car financing increases the total cost of the car and that is the glaring downside to it. But if you think about it, as opposed to saving for a few months or years so you can pay it in full, availing a car financing will enable you to get the car earlier. In a year, just how much would you be saving in cost if you are currently using the services of Transport Network Services (TNC)? In time and convenience if you are using mass transport? If you look at this way, car financing is essentially the same as saving but with the extra advantage of getting the car by next week, or days with GoDrive, if you decide to apply now.