Saving on Auto Finance Costs

If there was just one key piece of advice car buyers need to heed it would be don’t succumb to dealer financing. Car dealers have crunched the numbers in such a way that, whether you are offered zero percent financing, or a cash rebate, they will always come out way ahead. Nothing puts you into a better bargaining position than cash. Before walking onto the car lot, be sure to have your cash already lined up. If you don’t have it saved (which is the very best option), there are two quick ways to get your hands on a lump sum of cash that will put you in your new car with no hassles:

Go to the bank: Banks are still the best source of auto loan, offering competitive loan rates and terms. As with any type of financing, the better your credit standing is, then the better your terms will be. In many cases, you can secure an auto loan the same day you apply.

Tap your equity: Some financial planners will question the wisdom of borrowing from your home’s equity for purchasing a depreciating asset such as a car. But if you simply consider the dollars and cents, a home equity line of credit will usually provide much cheaper access to money for a car purchase. Presently, HELOC rates are generally lower than auto financing rates. Plus, the interest expense of a HELOC may be tax deductible (always seek the guidance of a tax professional on such issues). The downside of a HELOC is that it’s a variable rate and the possibility exists that it could increase. Additionally, because HELOCs usually only require interest payments, there is the temptation to simply pay the minimum interest instead of paying down the portion of debt attributable to the car. A HELOC really only makes sense if you have the discipline to pay down the auto debt within a three-year period. Otherwise it could end up costing you as much or more than any other financing method.