Financing a car can be a little overwhelming, a car is usually one of the biggest purchases you will ever make. Let’s take a look at some car financing basics.
Financing a car with a lease
leasing a car is a popular form of car financing. With specific benefits tax wise check with a CPA or certified Tax professional everyone has different goals. When you lease you’re paying for using the car, not for the car itself. Sales tax is only charged on your monthly payments (in most states) and you pay a financial rate called a money factor that is similar to the interest rate on a loan. You may or may not have to make a down payment. You may also have to pay a security deposit. When you lease a car, you’re typically making a lower monthly payment than if you were to buy the same car, but you’re not gaining any equity in the vehicle that could later translate to trade-in or resale value. Be aware of how many miles you drive (most leases charge a per-mile fee above an annual number of allowable miles) and you need to keep very good care of the car (most leases will charge you for any damage at the end of the lease period).
Financing a car with a loan
The main factors to consider are the loan amount (the total amount you’re borrowing to get the car), the percentage rate (known as the APR, this is the interest rate you pay on the loan) and the term (the amount of time you have to pay back the loan amount).
Interest rates are usually higher on a used car as opposed to a new one.
Different loan amounts, APRs and terms will affect your monthly payment.
Refinancing a car
If you currently have a car loan, you may want to consider refinancing into a new loan in order to lower your monthly payments. You will need to know your current interest rate, payoff amount on the current loan and term to compare your current loan with a potential new loan to see whether refinancing may be right for you.
Financing a car adds to the total cost of the car
Financing the car over time with a loan or a lease. Be aware that financing increases the total cost of the vehicle. Because you’re paying for the cost of the loan interest and other loan costs in addition to the cost of the vehicle.