fairwinds.org | wherever you are

 

So you've found your dream car, and now comes the hard part: paying for it. Most people don't have the means to pay cash for a new car.

That's why there are alternatives for financing. Here's a primer.

To buy or lease?

Leasing allows you to drive a nicer car without the hefty costs. You'll usually have lower monthly and down payments than with purchasing, as well as reduced repair costs since the average three-year lease expires before the vehicle's warranty does. You pay sales tax only on the portion of the car that you finance.

Here's the catch: You never really own the car. It's similar to renting a car for several years. At the end of the lease, you'll pay for wear and tear, as well as any miles that you drove over the limit, which is typically 12,000 to 15,000 a year. It can also be costly to terminate the lease early.

With a lease, you'll always have a payment. It's a great short-term option, especially if you like to buy and trade in cars regularly, but the costs add up over time. In contrast, when you buy, there will be — eventually and ideally — a period of several years when you aren't making a car payment.

If you tend to drive cars into the ground, buying is a better option financially. There is more flexibility in selling, you have no mileage charges, and you can save money in the long run.

There are advantages and drawbacks to both options, so consider your budget, lifestyle and driving needs before deciding.

Can you use a credit card?

Most dealers allow you to pay only a small portion of a car's price with a credit card. Dealers have to pay a credit card transaction fee, generally 1% to 3% of whatever was charged on the card. Since dealers typically have a profit margin of only a little over 2%, they aren't interested in sacrificing it to a card company.

So should you put at least part on a card? It depends. If you can get a 0% interest card and you'll be able to pay it down during that introductory term period, it may be worthwhile. Otherwise, it's probably best to stick with a traditional loan.

What other financing options exist?

Don't confine your financing search to just the dealership. Your local financial institution is more likely to offer lower rates, which means less interest paid over the life of the loan.

With financing in hand, you can focus solely on getting the best deal and turning your dream car into your real ride.

© Copyright 2016 NerdWallet, Inc. All Rights Reserved