It’s time for an upgrade. As you dream about getting behind the wheel of a new vehicle, know that you have options. Will you buy a car? Or, will you lease a car? With either choice you’ll likely require an auto loan from the manufacturer or your preferred financial institution, unless you have enough cash on hand to pay for the vehicle outright, which isn’t very common. Here’s what you need to know before browsing the dealerships and chatting with private sellers.
Things to do before car shopping
First and foremost, let your financial institution know you’re planning on getting a new car. They will help you get prequalified for an auto loan. Your lender will ask for your current income and financial obligations to learn what you can responsibly afford.
If you’re curious to crunch some numbers right now, play with our car loan calculator. It will let you discover the loan amount you could qualify for based on your available down payment, interest rate, length of loan and desired monthly payment amount.
Looking realistically at the numbers is a key step in getting a new car because it allows you to shop with confidence. Going into a major purchase knowing what type of payment will fit into your budget eases stress and helps keep your financial health in tip-top shape, especially if you’re planning for other major purchases in the future, such as a home or recreational vehicle.
Car buying versus car leasing
A new car is a new car, right? Not exactly. In addition to deciding if you want to browse brand new cars or pre-owned, consider whether you want to buy or lease your next vehicle. The primary difference is who owns the vehicle while you’re driving it.
Leasing a car means that you’re borrowing, or temporarily renting, it from the dealership for a set amount of time. The time period, price per month and maintenance details will be specified in the contract you sign with the auto dealer. Since you only have the car for a set amount of time the payments per month are typically lower and interest rates can be better. The payments and incentives vary from manufacturer to manufacturer and dependent on seasonality.
Some lease agreements split or fully cover the cost of maintenance with the lessee, making this option more financially manageable for first-time car buyers. But, read the fine print. Most lease deals cap the number of miles you may drive (and charge a fee for the overage) before you turn it back in.
Conversely, buying a car means that once you sign the contract, it’s fully your responsibility. You’re in charge of making the payment on the auto loan each month, and after you pay the final installment, the vehicle is all yours. You can keep driving it or sell it.
Unlike a leased vehicle, you do not return the car to the dealership after the final payment. Some people prefer this option so they can keep driving the same car for a longer period of time. Also, the paid-off vehicle has value and can work as a trade-in when purchasing your next vehicle.
Think about which option makes sense for your lifestyle and finances right now, and for the next three to five years, which is a common timeline for both lease agreements and auto loans.
How does an auto loan work?
If you’re planning to buy your next car, it’s important to learn a bit more about how to finance your choice with an auto loan. Your financial institution can help you understand current interest rates, the loan application process and any fees associated with borrowing money to get a new car.
Here at Elevations Credit Union, we offer a simple online application you can complete from home. Some applicants even receive instant feedback and approval!
After you’re approved for a loan, we will work with you to decide which terms best fit your lifestyle. For those who qualify, we offer up to 115% loan-to-value if you need a little extra cash on hand to make repairs or upgrades to your new vehicle. This option is popular when buying from a private seller who discloses the vehicle’s immediate maintenance needs when selling a car as-is.
Once you’ve got the keys to your car, you’ll start making payments directly to your loan servicer or their trusted third-party loan-servicing provider. And, that’s it! If you’re ready to get your auto loan approval rolling, or just have questions, contact us today. We’d love to help you make that new car a reality.