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Do I need a loan to finance a car?
I’m considering purchasing a new car, but I need to finance it since I don’t have the cash to buy it outright. Do I need a loan to finance a vehicle?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
If you don’t have the cash upfront to buy a new car, obtaining a loan is one way to finance it. But not so fast! Before jumping into a traditional
car loan
, it’s worth exploring other options.Let’s take a look at the most common methods for financing a car:
- Car loan: This involves borrowing money from a bank or credit union to purchase the car, with repayment occurring with interest over time. This option offers flexibility and control over the loan terms.
- Dealer financing: Car dealerships often provide financing options directly to customers. While this can be a convenient choice, it's worth noting that it may be less predictable compared to a car loan.
- Lease: Leasing allows you to make monthly payments for a fixed period, similar to a loan. At the end of the lease term, you can return the vehicle or purchase it. Leasing is attractive to drivers who prefer not to deal with the responsibilities of ownership.
In 2021, approximately 25% of financed vehicles were leased, while the remaining 75% were financed through car loans. Taking out a loan is the most common method of financing a new car.
Nevertheless, it’s important to thoroughly assess all available options and select the financing method that suits your preferences and financial situation.
View full answer
- Gregory R.
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