If you want to buy a new car, there are a number of alternatives to getting a car loan. And they can be especially useful if you have less than stellar credit or don’t want to settle for an auto dealer loan. Let’s discuss some of the alternative financing options that are available to most people. We’ll also address the advantages of each financing method.
Tap Your Home Equity
If you arrange for a cash-out refinance of your home, you can use the cash to buy a new car. Now you own the car outright, while the payments are part of your refinanced mortgage. The interest rate for the new mortgage will still be low. And this type of alternative financing won’t adversely impact your credit as would a new car loan along with other debts taken out. The risk you take with this strategy is that you treat it as free cash and buy a bigger, more expensive car than you would have if you were carefully shopping for a car loan.
Retirement Plan Loans
If you have a retirement plan, you may be allowed to take out a low-interest rate loan against your retirement plans like a 401K or 403B to buy a car. The upside is the low-interest rate and the fact that it doesn’t depend on your credit.
However, the retirement plan doesn’t have to allow this type of loan, and it may not allow it if they don’t consider a car a necessity. You’re also taking the risk that you have to pay the whole loan if you are laid off unless you want to pay taxes and a 10% penalty on the value of the loan because it is classified as an unauthorized withdrawal. A retirement plan loan will generally be limited to a few years, so expect to have to pay it off within five years, and it may be as little as three.
Third-party loans are loans through another institution or group, aside from the auto financing company. One version of this is borrowing on credit cards to pay for a car, though this comes with a truly terrible interest rate once the low teaser rates expire. The only upside to this approach is that you’ll own the car while the credit card debt is unsecured and dischargeable in bankruptcy without having to necessarily give up the car. You may or may not gain flexibility in your monthly payments, depending on whether or not you can pay more than the minimum monthly payment.
If you don’t know where to look, you could work with a brokerage service that will connect you to a variety of lenders. Or you could use a service like Car title loans that’ll find an affordable loan with the terms that you want. They may find a better loan through a credit union or regional bank than you could find through your current financial institution.
There are a number of alternatives to taking out a car loan with an auto financing company. What works best for you depends on the interest rate you’re willing to pay, how long the loan term needs to be, and the risks you’re willing to take. Research all of your alternatives before you buy a car. You may also consider a used car. It will cost you less but it may difficult to find a good car. Either you can find yourself or visit https://www.kellerusedcar.com we are the number one dealership in Hanford. A car dealer can help you find the right used car for you as per your requirements and budget