Cars on Payment Plans: What You Need to KnowPublished Wednesday, October 20, 2021
When you purchase a car through a dealer, you have several options to pay for the vehicle, one of the most popular of which is to pay back the vehicle cost over time through a payment plan.
Car dealer financing allows you to purchase a vehicle with lower upfront costs. However, if you don’t fully understand a payment plan before agreeing to it, you may be stuck with high interest rates or strict terms that make it challenging to repay your loan.
Read on to learn everything you need to know about buying cars on payment plans. Then reach out to our team at Westside Auto to start searching for your new vehicle
Types of Auto Payment Plans
You may qualify for several payment plan options through your dealer and through outside sources. Here are a few of the most popular car payment methods:
If you only want to use a car for a limited time, you may opt for an operating lease. This payment option allows you to use a vehicle while making monthly payments for a predetermined period. Once the lease ends, you will turn the car back into the financier or dealer.
Novated leases are leasing options exclusive to salaried employees. This lease allows you to finance your vehicle through part of your pre-tax income, effectively lowering your taxable income.
To enter into a novated lease, you, your employer, and the financier must agree to the lease terms. Once the lease ends, you can either refinance the vehicle, pay out the residual, or sign a new lease for a newer car.
However, if you lose your job while in a novated lease, you may lose ownership of the vehicle.
Another way to finance a vehicle through a payment plan is to take out a personal loan. You can receive a personal car loan through numerous financial institutions, such as your personal bank, a credit union, or an online lender. You will then repay the loan over time through monthly payments that include interest.
The interest rate you can expect on a personal loan will depend on your credit score, credit history, income, savings, and loan amount. Sometimes, these loans can be relatively affordable. Other times, they leave you paying thousands of additional dollars in interest.
Most dealerships allow you to finance your vehicle through a dealer-sponsored loan. When you opt for dealer financing, the dealership will work out all the loan logistics for you, then present you with the terms. You can agree to the terms or attempt to negotiate. Your loan payments will then take place through the dealer.
Dealer financing is the most affordable way to finance a vehicle. Often, dealer loans include low interest rates and affordable monthly payments, making them easier on the wallet than any other option.
Many car dealers offer loans with balloon payments, which are lump sums that you pay at the end of the loan term. If you accept a loan that uses the balloon payment method, you will pay low monthly payments throughout the term. At the end of the loan, you will need to pay a larger monetary sum to finish paying off the vehicle.
Many car buyers choose the balloon payment method to limit their monthly costs. Then, they sell the car at the end of the loan term, use their earnings to pay the balloon payment, and purchase another vehicle through a new loan.
FAQ About Auto Payment Plans
How Much Can I Borrow in a Car Payment Plan?
Most car financing options allow you to borrow the total cost of the car, including any dealership fees or closing costs. These payment plans make it easy to afford a car even if you do not have much savings.
Do I Need to Pay Interest on an Auto Loan?
Most loan terms require you to pay interest, which is an additional percentage of your total loan amount, along with your monthly payments. Financial institutions and car dealerships determine your interest rate based on the amount of risk that you present to the financier. The greater the risk, the more interest you will pay.
What Information Do I Need When Applying for a Payment Plan?
When you apply for a loan or other financing option through the dealer, an online lender, or your bank, you will need to provide some essential information to the lender. Typically, the lender may ask you for your:
● Contact information
● Driver’s license number and expiry date
● Income in the form of payslips or tax returns
● Investments, assets, and savings amounts
● Monthly income and expenses
● Other loans
● Employer information
The lender will also perform a credit check to review your score and history. If you plan to apply for a loan through the dealer, be sure to have all this information on hand to streamline the application process.
What Is the Best Car Payment Plan?
Each of the car finance deals on our list has its advantages and disadvantages. The best car payment plan for you will depend on your income, how much you want to spend on a vehicle, what interest rates you can afford, and how long you plan to keep the car.
However, we typically recommend dealer financing over other finance options. Financing your vehicle through a dealer-sponsored loan can provide you with low interest rates and reasonable loan terms. This option is also more convenient than requesting a loan through an outside source, as the dealer handles all the logistics for you.
If you decide to sell your vehicle at the end of the loan, you can also easily sell it back to the dealer.
Contact Westside Auto Today
If you’re considering financing a vehicle, we can help. At Westside Auto, we offer several financing options and an online payment calculator to help you better understand the total cost of your payment plan options.
Request financing online today to learn how our friendly professionals at Westside Auto can help you purchase your dream vehicle.