Alternative Ways to Finance a New Vehicle

a red car parked on a road

Buying a car is a huge and exciting step in the future. Whether you’re making your first purchase, getting a bigger vehicle for an expanding family, or finally investing in that mid-life crisis sports car, you’re probably pumped to get behind the wheel of your new ride. A lot goes into buying a car. You need to maintain a good credit score, shop around for the best deal and know exactly what type of model you’re looking for. Not to mention all the contracts, buying options, and ways car dealers can try to up-sell you. It’s up to you to be smart and savvy as you shop around for the perfect car for you because it isn’t a purchase you want to take lightly.

Investing in a vehicle can be expensive. With traditional financing options, you end up paying off your car for years with high-interest rates and zero tax breaks. It seems unfair. Most people need a car to get around and to and from work, so why does it have to be so expensive? Well, it doesn’t have to be. In fact, there are plenty of other financing options beyond the traditional loans you’re probably thinking of. So you don’t have to consult the bank or enter a sketchy contract at the dealership to drive away with your new vehicle. Take back control of your car-buying experience with these alternative financing options.

Look into leasing options.

While getting a new car often involves buying one outright, there’s another option you can consider, and that is a lease contract. In a leasing situation, rather than making payments to one day own a vehicle, you make lease payments every month for a set period of time, then you return your vehicle at the end of it. Essentially, this is like a long term rental situation that allows you to test out different vehicles then decide if you want to buy at the end of the lease. Oftentimes, you don’t really know if a car works for you until you get to try it out.

Maybe you like the look of a Jeep, but it isn’t practical for your lifestyle. Or maybe the leather seats sounded great in theory, but they burn your skin in the summer. Or maybe you hit your mileage limit much quicker than you thought, and you need something with a little better gas mileage. All these nuances of finding the perfect new car can be figured out during your lease term.

Another great way to save is with novated leasing. You may be asking, what is novated leasing? This is a lease contract that actually spans between you, your employer, and the dealership. Rather than making monthly payments to the finance company, your employer sends them money directly that comes out of your paycheck. You can either set up a fully maintained novated lease that covers the car’s cost plus extra maintenance, fuel, or insurance costs. The other option would be to cover the money factor of the car itself.

The biggest benefit of this system is that the payment comes out of your salary before it is taxed. That can save you a lot of money on your new car. The only downside is that this is a lease agreement, so you won’t actually own the vehicle. At the end of your time But overall, if you’re looking for a more affordable option for your car loan, consider a novated lease to get you in your new ride for less today. It’s a sensible choice for many shoppers, so you need to include it as one of your options.

Pay it off right there in cash.

Depending on your financial situation and the type of car you’re interested in, there’s a chance you can pay it off right there and then. Paying in cash is a great way to ride off with a new car without any strings attached. You’ve paid everything off with one check, so you won’t need to deal with a finance company or monthly payments from here on out. Now, this may be a costly decision for a new car that is state of the art. Driving new Chrysler and Dodge cars for sale in Enfield, CT, right off the lot is going to cost you around $30,000 plus tax. But if you have that kind of money lying around in savings, this can be a simple, straightforward option for you.

Of course, there are some downsides to paying right away in cash or with a check. You lose out on the opportunity to start a new line of credit and improve your credit score with a good record of monthly payments. You also take a risk in driving right off the lot with the depreciation of the vehicle. Students of an Automotive and Diesel Technology program would be able to tell you that driving your car around actually decreases its value. So while you paid a certain amount upfront, your car immediately loses value and there’s no chance of getting any deal or value back.

Borrow from other funds you have saved.

When you buy a new van or SUV, you may think your only financing option is with the dealership or a traditional car loan. Hint: those aren’t your only options. Sometimes you may have the opportunity actually to borrow from other areas of your own finances. Take a home equity loan, for example. When you’ve been paying off your mortgage over several years, you already own parts of that property. You have equity in your home. Oftentimes a bank will allow you to borrow from that equity. You can start a fresh home equity loan or even open a home equity line of credit that you can use just like a credit card. This may be a great experience to get you an advance on the extra funds you need to buy a car.

Another option, though slightly less enticing, is borrowing from your 401K. Make an inquiry with your administrator to see if this is an option for you to use those funds on a non-essential item before you hit retirement. The downside here is you end up losing the benefits of keeping that money and growing it within your 401K. You also have stricter guidelines when it comes to paying back the loan. While this is an okay option if you are desperate for a loan, it can be a hassle and have additional costs vs. benefits.

Charge it to your credit card.

In some cases, you may be able to pay off some or most of your car with your credit cards. Talk with your bank or your credit card company about opening an extended line of credit that can be used to cover the extra costs of big purchases like a car. Just make sure you read all the fine print to guarantee you a reasonable interest rate. The last thing you want is to think you’re getting this great deal, only to be surprised a few years later. As buyers, it’s your responsibility to stay on top of your financing options and pay them off quickly and efficiently. Overall, this will get you in the right car for the right price every time.