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Personal Finance: Your New Car

You're ready for a new car, but you need to know how you can afford it. If you are like 7 out of 10 people, you can't simply pay the full price. But, there are some options that will allow you to drive that new car sooner than you think.

If you understand your financing options, you'll get your new car and have reasonable financing costs at the same time. But, if you don't know what options are available to you, the costs could be more than you can afford.

There are three basic factors you should consider whenever you are discussing a loan: monthly payment amount, interest rate and the term (length of the loan). These factors are related. If you know two of the factors, you can determine the third.

Another factor to consider is your credit rating. Your credit rating lets others quickly determine if you are a good credit risk. A good rating helps you get lower interest rates. The credit rating is determined by what is contained in your credit report. Because 3 out of 4 credit reports contain errors, you should review your credit report before requesting any loans.

If you find errors on your credit report you should work to get them removed or corrected. You can do this yourself or contact a group like Better Credit Pros to clean up your report. Then you can feed more confident about getting a loan at the best rates available.

Auto Loans from Lending Institutions

First, your credit union, and then your bank are likely to have the lowest rates for auto loans. For auto loans, you will be using your car as collateral for the loan. Credit unions and banks can provide low rates especially if you have had a long term relationship with the institution and have some money in an account. This, along with your credit score, will help label you as a reliable person who will make regular payments on the loan.

Dealer Financing

While dealer financing is very easy to get, it is also more costly. While dealers may offer you low payments to entice you to make a purchase, the payments will last too long. Your payments will be mainly interest and will not make fast progress in paying down your loan. After a few years, you may find that you owe more on your car than it is worth. People with "upside-down" car loans often don't have the money to trade in their car for a newer car when they want to do that.

Home Equity Loans or Home Equity Lines of Credit

If you have equity in your home, you can use your home as collateral for your car loan. Since your home has lasting value you can get some of the best rates using these options. For a home equity loan you must consider whether a fixed rate loan or an adjustable rate loan would be best. Home equity line of credit loans are open ended loans that are preapproved, normally with an adjustable rate. You can obtain home equity loans through your local financial institutions or through online mortgage companies such as PWS Mortgage.

Credit Cards

Credit card advances are among the highest interest rate loans you can obtain. Most cash advances on credit cards carry interest rates of 20% or more. While many credit cards offer no initial fees and even low interest rates for the first several months, when the initial period of low interest is over, the interest charges will be very costly. If you don't make your payments on time you will probably incur additional penalties.

So, knowing your auto loan options can make a big difference in how much you wind up paying for that new car.

The following are resource you can use related to personal finance:

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