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Understanding Your Auto Financing Options

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Don’t have money to buy a car with cash? Then do what the majority of car shoppers in the U.S. do: finance the purchase. There are two basic ways to go about financing a car: direct lending and dealership financing.

 

Direct Lending

Your first option is to borrow directly from a lender. You can obtain a loan directly from a bank, credit union, finance company or an online lender like St. Louis Auto Approval Center. You agree to pay the amount financed, plus interest, over a set period of time. When it is time to buy a vehicle from the dealership, you use the loan you secured from the direct lender to purchase it.

When you get financing prior to buying a vehicle, you will know in advance how much you can borrow and what rate you qualify for. Because you know the credit terms ahead of time, there will be no unpleasant surprises.

Another perk of direct lending is that you are more likely to get a better rate. Because you have a number of choices when it comes to direct lenders, you can shop around. Approach several lenders, get quotes from them, and see which one offers the best offer. When you comparison shop, you are more likely to find and get a good deal.

 

Dealership Financing

Your other option is to borrow through the dealership. You and the dealer enter into a contract wherein you purchase a vehicle and agree to pay the amount financed, plus interest, over a set period of time.

Note that with this option, you borrow through the dealership, and not from the dealership. Though there are dealers that retain the contract, most sell the contract to an assignee. An assignee is the lender that buys the contract from the dealer, and that which provides the fund for your auto purchase. As a result, the assignee is that which collects the payments. The assignee can be a bank, credit union or finance company.

One key advantage of dealership financing is convenience. You can get financing and buy a car in the same place. Plus, you can get financed and make a purchase at the time most convenient for you. Dealerships are open on weekends and can operate past usual working hours. Moreover, there is less hassle with dealership financing because the dealer does the work for you. The dealer finds the financing instead of you looking for it yourself.

Another benefit is more options. Every dealer has a wide network of partner lenders. Its relationships with a number of banks, credit unions and finance companies provide you a better selection of options.

Lastly, there is something only dealers can offer, and these are special offers. These include zero percent financing as well as manufacturer rebates and other incentives. Dealers are connected to automakers, so they can offer the latter’s special programs to consumers. Know that you need to meet requirements to qualify for exclusive offers.

 

Bottom Line

Before you decide on a particular financing option, weigh the pros and cons of each. Consider your needs and preferences when you make a decision. Do as much research as you can, as the best choice is an informed choice.

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