Only if you have inherited a box of treasure from your forefathers will you be able to buy your car by making the full payment in cash. But if you are like any other 9 to 5 office-going person, or even if you have a small or a medium-scale business, you will have to find a suitable source to finance your car.
But choosing the right source of finance is not an easy task. It depends upon your requirements, creditworthiness, financial position and flexibility, and the amount you wish to finance. So here is a list of various sources of car finance, explaining their pros and cons, which will help you to understand better and choose the most suitable source:
Banks are the most famous and dependable source of finance for financing a car and other things like financing education, home, etcetera. Since there are so many public and private banks, the interest rates on car loans also vary, and thus you get options to choose from. But getting a loan from a bank involves many legal procedures, so it might not seem convenient to some people.
A credit union is a non-profit-making organization wherein a group of people pools money so that the members can take loans at low-interest rates. It is generally considered a reliable source to finance your vehicle, as the sole motive of a credit union is to provide easy loans to its members.
The dealer from whom you are purchasing provides you with a loan through a bank or a financial institution. This is helpful when you have a bad credit score. Plus, they specialize in car financing, unlike banks.
Home equity loan
Buying a car by mortgaging your equity in your home doesn’t make sense. This is generally the least taken way to finance your vehicle, and it should be. It involves greater risk, so try to avoid this option.
Family and friends
The easiest way out when you have a low credit score and the banks and financial institutions doubt your creditworthiness is to borrow money from family or friends. Taking a loan from someone in the family or a friend will cost you much less than the bank. But—it might change your relationship with that person, so beware!
A usually-not-considered source of finance, a title loan means mortgaging your car’s title and the documents with the bank to get the amount to buy that car. This puts your ownership at risk, so go for it only when you have more than 100 percent confidence in repaying the loan.
You do not buy a car; you buy a lifestyle. And that is a good enough reason to carefully choose the right vehicle for yourself. But even more important is choosing the right source of finance for your car. So the decision on the source to finance your vehicle requires immense thought and carefulness.