Auto Financing

Buying a new car always comes with a bit of excitement and it's always a hastily concluded process especially for a first time buyer. The level of excitement to drive home in a new car often times does not give you room to look for the best car for your money.  You might need to slow down a bit and take a deep breath.  A decision to get a new car should not come as a result of seeing a TV commercial or seeing a cool car at a dealership showroom. Consider your expected use, work out your budget, which type car fits your budget and then how to finance that particular car. Do some research from the manufacturers websites, visit car dealerships to scout for favorable car prices to help you make an informed decision. Take your time to gather as much information as possible and determine the most favorable price and for which car. Once you have decided which car fits your budget, choose the financing model.
There are several ways  of paying for your new car. Each has its pros and cons. You just have to figure out the best possible option for you based on your current financial position. You could choose to;

• Pay cash from your savings for the new vehicle
  

Not a bad idea at all, isn't it? As great as it might sound, it is not always your best option especially if you are going to deplete your savings account buying the new car. You might also prefer to use your savings to start up a profitable business to eventually pay off your car loan. 
On one hand, if you have a bad credit history, you might choose the cash option to avoid paying a huge interest on the loan and damaging your credit rating even further.

• Auto leasing
  

In auto leasing, you use a motor vehicle for a fixed period usually in years at an agreed amount of money for the length of the lease. The period is normally 1-4 years and once the lease expires you return the car to the dealer for disposal. So literally, you can drive a new car every few years! Lease payments are usually much lower and the qualification process is easier than obtaining a car loan. The car lease agreement though comes with certain conditions; maximum allowable mileage per year(usually 10,000 miles), allowable wear and tear, early lease termination fee, etc. Beware penalty fees may apply if you violate the lease agreement. Work out what is best for you basing on the projected use and if possible negotiate for a higher mileage for a slightly higher lease payment if necessary to avoid penalties. You can also opt in for a lease with maintenance; excluding fuel and insurance to save yourself the headache of breakdowns and regular maintenance. Newer vehicles, however, require less maintenance. So it is not worthwhile paying extra unless you make frequent long trips. This option is good for businesses and large companies.

• Auto loan
  

You can get a direct car loan from a financial institution or individual, namely; a bank, credit union, online lending institutions, a relative or indirectly from a car dealership which deals with financial institutions on your behalf. 
If you have decided to finance your car by loan and not pay cash, then you need to do some research to get the best financing deal. It is best to begin with your bankers since you already have an established relationship with them. Your banker will often give you a competitive rate, tell you if you're paying too much for a car, give free life or disability insurance with loans; and the loans are usually simple interest loans (whose interest is evenly spread throughout the term of the loan).

If you own a home, you can free up tied up equity to finance a new car. This is however risky since you could lose your home if you default because a financing bank or individual retains a lien to the home until the debt is fully repaid.

Car dealerships often give a fast, convenient and competitive option. Be ready for a big sales push on add-ons; loans are often compound interest loans (You pay more interest in the beginning of the loan than towards the end). It works against you if the loan servicing period is longer. Always negotiate for a good interest rate rather than a small repayment installment. If you negotiate for a small repayment installment, the your business manager instead extends the term of the loan in which you pay more for the car.

If you can get a loan from a friend or relative, so much the better, because this option offers very flexible terms and payment period. It is not always possible though to get very big sums this way. In any case, care not to jeopardize your relationship with them. Be truthful and pay off your obligation to them.

I do not recommend financing through online lending institutions because there are more scams than legitimate ones. So beware! Be very cautious if you choose this option! Only deal with them if you know them well!