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Which Comes First, Financing or Finding Your Dream Car?

A new car—and even a new-to-you car—is an exciting purchase! But before you dash off to the nearest dealership with your list of vehicle must-haves, learn how getting financing first is the smartest way to find your new ride.

First, apply at your local credit union to learn what size loan you qualify for and what interest rates and loan terms are available. Traditionally, credit unions are able to offer lower interest rates on car loans to their members than other lenders like banks or dealerships. Your credit union can also help you determine what size loan best fits your finances and budget to ensure you don’t over purchase.

Second, learn about the pros and cons of leasing a new car, buying a new car, or buying a previously owned car, especially considering your budget. Leasing a car is like renting it from the dealership. They will take care of maintenance costs under warranty, you get to drive a new car with a low or no down payment, and at the end of the lease you simply drop the car off at the dealership—no hassle of trading it in or selling it.

On the flipside, mile restrictions (with a penalty if you go over that mileage) can be restrictive, leasing is more expensive than an equivalent car loan because you are driving a rapidly depreciating car, if you lease one car after another the monthly payments continue but you never own a car outright without payments (which is when you can get the most value out of a car), ending a lease early could cost you thousands, and you must return the car in good condition or be charged for excess wear and tear.

Third, start looking at cars! Search new car dealerships, independent dealerships, used car retailers, and private sellers in your area. You can even browse and purchase online at sites like Autotrader, CarMax, TrueCar, AutoTempest, and Cars.com. Throughout the process, be firm about your car loan budget. There are good deals to be found out there, but it’s only a deal if you stay true to your budget and can afford the monthly payments.

Know that dangers lurk in getting financing from used car retailers themselves and not from a financial institution like your credit union. These retailers make lots of promises, but their financial practices are not regulated, and they often sell cars to buyers who can’t afford the payments knowing they will default on payments. The car seller can then repossess the car and re-sell it. They also charge higher interest rates with brutal consequences for late payments.

The smart car shopper knows what they can afford before touring the car lots. There’s a car out there for you within your budget—know your financing options and then find your new set of wheels!

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