As only 3% of people purchase a car from a dealership with actual cash outright, most people have to borrow at least some the money when purchasing a vehicle. Many people ask this question: Do I borrow the money from a line of credit (LoC) or take out a loan?
An auto loan is a one-time amount that includes the entire purchase price of the car minus any downpayment. For new and certified pre-owned cars, the manufacturer will usually have a low promotional interest rate. For used vehicles that are not certified pre-owned, the rates are determined by a few factors. Facts about loans:
A line of credit is a reusable amount of money a lender gives you, similar to a credit card. Every month interest is added only to the portion that you have used. Auto dealers don’t offer lines of credit so to purchase a car you have to be pre-approved before.
Choosing which method is best is not decided solely by the interest rate. There are many reasons for choosing either based on your flexibility needs and if your making other purchases. However, after doing the research, it’s clear that if the interest rates between both the line of credit and loan are the same and are planning to take more than 3 years to pay off the vehicle, taking the loan at the dealership will provide the lowest payment and interest cost with flexible terms. This also adds to the convenience of getting approved on the spot and in many cases driving the vehicle away within an hour.
If you would like to find out more about auto loans, shoot me a message, I’d be glad to help!