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What’s the Best Way to Finance a New Car?

Many people spend a long time trying to get the lowest price possible on a new car. Unfortunately, they don’t take the time to shop around for an ideal car loan financing that will give them the best deal. Most of the time, when you visit a dealership to buy a new car and you don’t have the adequate financing already in place; you are vulnerable to the terms the dealer is going to offer you — which may be sky high in terms of interest rates. Dealers are notorious for marking up interest rates on loans, which can literally end up costing you hundreds of dollars.

In the end, it’s wise to balance the total cost of the loan with an affordable monthly payment. Here are a few tips on how to finance a new car in order to get the most out of your hard-earned cash.

Understanding the Total Cost of the Loan

When shopping for good car loan financing, it’s best to concentrate on the APR (Annual Percentage Rate), which inevitably varies from one back to another. For example, CB Online are offering 4.9% APR. That’s cheap compared to the 17% deal I saw from Clearly Loans. A 12% difference on £10,000 would save you around £1,200 in the first year, which is enough money to spruce up your wardrobe, go on holiday, or even put aside for a rainy day.

A lower rate can generate very substantial long-term savings. Another important aspect to consider is the term of the loan itself, which will play a big part on the amount of your monthly payment, as well as, the entire cost of your loan. A shorter term loan may mean a higher monthly payment, but less money spent over the life of the loan. Try to make the length of your loan as short as you can possibly afford.


Confidently strolling into a dealership with a guaranteed loan already agreed gives you flexibility and a lot more bargaining power. It also keeps you from avoiding the common mistake of confusing your financing costs with the actual price of the vehicle. On the other hand, walking into a dealership without doing proper research on how to finance your new car is simply setting yourself up for paying too much. You don’t want to end up on this list of disaster stories.

Here’s where I’d look.

Local Banks

Banks typically have very conservative, detailed loan policies and may only lend to people with above average or good credit references. However, most banks offer very competitive loan rates. It’s likely you already have an ongoing relationship with a bank, which can offer a good starting place to search your financing options. Most banks have sites online where you can easily find out their most current loan rates.  You can typically apply online, over the phone or in a branch.

Online Banks

Online lenders are often very competitive. Rather than physically visiting a branch, you can simply apply for the loan online. A quick search on Google should bring up plenty of possibilities for you to research. If you’re not familiar with a certain online lender, quickly check with the Money Advice Service as a precaution.

Local Credit Unions

Credit unions work much like banks except they generally only lend money to their members, who are actually owners of the establishment itself. Since credit unions are basically nonprofit, their overall operating expenses are rather low and their rates are very competitive as well.

Now that you have a better understanding on how to finance a new car, shopping for a car loan financing that is affordable and competitive shouldn’t seem so daunting. So, crack open a beer and start comparing: that new car is closer than you think!