Do I need a loan to finance a car?

I want to purchase a new car, but I’ve never had a car loan before. I know that I need to finance the car because I don’t have the cash to buy it outright. But do I need to get a loan to finance a vehicle?

Answer
While financing and car loans may seem confusing, they’re essentially the same thing. So if you take out a car loan to purchase the vehicle, you’re financing the car.
As long as you continue to make on-time payments, you keep possession of the car and own it outright at the end of the loan. Keep in mind that financing a car increases the cost of car ownership compared to buying the car with cash.
If you lease a vehicle, you’re technically financing the car as well, but you won’t own the car at the end of the lease. Instead, you’re paying to use the car.
You’ll still make a monthly payment, but you won’t earn any equity in the vehicle. And at the end of the leasing term, you must return the vehicle to the dealership or come to a new agreement to buy out the lease, which may require getting a car loan at that point.
In 2021, about 25% of financed vehicles were leases. The remaining 75% were car loans. You’ll just need to decide whether you want to own the car at the end of the lease or if having a new car every few years suits your lifestyle better.
Whichever financing option you choose, make sure you get the best rate on your car insurance with the Jerry app. As a licensed broker, Jerry helps you find and compare quotes from over 50 top providers in minutes. When you find a great rate for your new car, Jerry can help you buy your new coverage. Jerry customers save an average of nearly $900 per year!
Eric Schad
Answered on Dec 01, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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