Buyers’ Guide to Car Financing


Buyers’ Guide to Car Financing

A car is simply a wheeled vehicle used for transport. Generally most definitions of cars state that they are generally long-range vehicles, seat two to eight passengers, possess four wheels, and primarily to transport persons instead of goods. In addition, some cars do not have doors and are classified as race cars. Car manufacturers create models that fit into different types of budgets and lifestyles. The basic car is the first step toward purchasing a car, but there are many options available to change the car into anything from a sports car to a family car.

Purchasing a car using cash provides a number of benefits for a buyer. A bank can lend money to a purchaser until the buyer repays the loan using another form of payment such as a mortgage. If the bank were to repossess the automobile before the end of the loan term, it could potentially recoup most, if not all of its investment. For this reason, buyers who obtain financing using a bank must typically have a high enough credit rating to qualify.

Buying a car using car financing provides the buyer with significant advantages over most alternatives. First, using car finance offers lower monthly payments. This advantage is most significant for borrowers with poor credit ratings. However, most buyers will be able to obtain a good interest rate by keeping their credit rating in good standing. As a result, the marginal cost of owning the car using car finance is much less than the cost of purchasing the vehicle outright.

Another advantage associated with using car finance is that the bank is not required to compensate a borrower for anticipated losses. Generally, banks are required to compensate for anticipated losses through customer taxes, depreciation, administrative costs and sales charges. On the other hand, the car manufacturer is not required to compensate the bank for expected losses. The major advantage to using car finance is that it allows buyers to obtain a vehicle even when they may have limited funds available to purchase one. In many instances, potential borrowers may be able to acquire a car even with very small down payment. Moreover, even those borrowers who have marginal down payment may still obtain a good interest rate by using car financing.

A third advantage associated with using car finance is that it provides buyers with a way to raise funds without having to rely on tier-2 capital from the bank. The majority of traditional bank loans require borrowers to deposit their initial capital into a savings account before making a loan commitment. The savings account may also be subject to a variety of fees. Furthermore, most bank savings accounts are tax deductible and may reduce the tax liability of the bank in some situations.

Buyers are also able to use car finance to raise money for other types of purchases such as a home. Typically, homeowners use their home as collateral to obtain financing. Homeowners often have a substantial amount of off-balance sheet capital that is parked in the bank due to the low interest rates associated with owning a home. By using the equity in the bank’s home to obtain financing, buyers can circumvent many of the cost and fees associated with traditional financing.