Exploring the Benefits of Financing a New Car

Many drivers choose to finance their vehicles rather than save cash upfront. But which option is best for you?

Car financing offers many benefits, including driving a new vehicle immediately without waiting to save all or part of the cost, an expanded choice of vehicles, and tax benefits.

Lower Monthly Payments

Many car buyers are tempted to buy a new vehicle with a longer loan term, like 60, 72, or even 84 months to afford the monthly payment. However, the more time you finance a vehicle, the more you will pay interest charges.

A sizable down payment will reduce the amount you need to borrow, lowering your monthly payments. You can also save by buying a used vehicle or trading your current car. Either way, you should always choose a shorter loan term, saving you money through lower rates and life-of-loan interest charges.

Another benefit of financing a vehicle is that you become the owner of it at the end of your loan agreement, which provides you with an asset you can sell later to a dealer like Turner Chevrolet or a national car-buying service for cash. This allows you to keep your savings intact, which can be a helpful backup in an emergency.

No Upfront Costs

Not many people can afford to pay the total price of a new vehicle, so financing is an important consideration. Whether you’re buying from a private seller or dealer, the out-the-door price will include the amount of the loan plus a down payment and any value that you can roll in from a trade-in vehicle.

Financing allows you to make a larger down payment, which can lower the all-in cost and reduce your monthly payments.

You can shop and find competitive rates if you finance your car through a lender. Large national banks tend to have higher interest rates, while local and regional banks offer lower rates than big national lenders. Similarly, credit unions often have lower rates than the national average. You can save even more by combining your loan with a down payment and trading in an existing vehicle.

More Accessibility

In addition to helping you afford your car, financing a new vehicle can help improve your credit. Making timely monthly payments can boost your credit score, signaling responsibility and eligibility for favorable loan terms.

Financing a new car is often more affordable than buying one outright because you’re not paying for depreciation or other upfront costs. And many manufacturers offer zero or low-percent financing to attract customers.

Long-Term Savings

When you finance a car, you’re taking out a loan to buy the vehicle rather than paying for it in total upfront or leasing it (which is essentially a long-term rental where you won’t own the vehicle at the end). Dealer financing can be convenient if you have excellent credit and want to avoid shopping around or spending time finding a good deal.

But there’s no harm in shopping for a car loan at a bank or credit union where you have a solid relationship with a financial representative and can secure better terms than your dealer might offer.