Factors to Consider When Comparing Car Financing Options
Many people choose to finance a car, and there are numerous different auto loan options available. As you survey the different car financing options that are available to you, use these factors to determine which of the options is best for you.
How Long You Expect to Drive the Car
Most car financing options are measured in months because payments are made monthly, but the loans actually last several years. For example, a 60-month auto loan has a duration of five years. To figure out how many years a particular loan is, simply divide the number of months by 12 since there are 12 months in a year.
Knowing how long a loan lasts in years is more helpful because people usually think of car ownership in terms of years and not months.
Estimate how many years you expect to drive the car you're buying, and use that number of years as the maximum duration of a loan. For instance, you won't want a car loan that's longer than 7 years (84 months) if you expect to drive the car for 7 years.
You can always take a car loan that's shorter than the time frame you expect to have your new car for, and you might want to so that you can fully own the car without making payments for a little while. You don't want to take out a loan that's longer than you'll have a car, though, because doing so will force you to continue making payments even after you switch vehicles again.
How Much You Can Afford to Put Down
Many car financing options require you to put money down at signing, but there are occasional deals that require nothing down upfront. In general, loans that require more down come with more favorable terms because you're paying more upfront for the vehicle and have a vested financial interest in it. Not everyone can afford to put money down at signing, though.
Evaluate your current savings, and determine how much you can afford to put down. In most cases, you should pay as much as you can afford to without taking on other debt or using all of your emergency funds. Whatever you can afford to pay at signing will help you, but you don't want to unduly strain your finances.
What You Can Afford to Pay Monthly
The monthly payment is how much a car financing option will require you to pay on the loan each month. Make sure the payment fits within your monthly budget.