How to Finance Your Car Purchase

Whether you have decided to buy a new or a used car, you should spend some time planning and researching how you are going to afford it. Here are some of the best ways to finance your car purchase. Read this guide to decide which option is right for you.

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Pay Cash

Paying cash is often the cheapest option when it comes to buying your new car. This is because you won`t have to pay any interest, which you will if you make the purchase using a loan or finance agreement. However, there are still a couple of things you will need to consider when paying in cash.

Firstly, you need to check that your money is as accessible as you think it is. If you have money in investments or even in a high-interest savings account, it may cost you to make a withdrawal at the time you want to rather than the time the savings company has already agreed. You may lose interest or be liable to pay tax on your withdrawal, so check this first.

You should also make sure that you retain some money in your savings account for unexpected bills. If you clear out your account to buy your car and an unexpected bill arrives, you may be left wondering how you are going to pay it. A good rule of thumb is to always keep three months` salary in your bank account so that you can make those emergency payments when necessary.

Bank of Mum and Dad

If you know you are going to need finance, it may be worth asking parents or relatives to loan you the money before you take out a credit agreement. There is always the chance that your family will say no, but if you don`t ask, you won`t know. If they do agree to loan you the money, there is a good possibility that they won`t charge you interest. This could save you a lot of money over the term of the loan.


If you already have a car but you are looking for a new one, you have the option to trade your car in. This means that you use the value of your current vehicle towards another one at the car dealership. For example, if you have seen a new car for $15,000 and you are told that the trade-in value of your old car is $5,000, you could give the dealership your car plus the outstanding $10,000 to buy your new car.

A trade-in will not cover the whole cost of your new car but it will provide you with a down payment and make your new car cheaper. It also means that you have gotten rid of your old car without any hassle. You will then need to decide how you will pay the balance. The downside to a trade-in is that the dealership will probably give you less money for your car than you might get if you sold it privately, so you must weigh up whether it is worth trying to sell it yourself or you would prefer the dealership to take it off your hands.

Credit Card

Using a credit card to purchase a car can work well but only in some circumstances. Firstly, you need to have the available credit to allow you to pay for it on a card. If you have this and you are happy, you could repay the balance quickly, or if you have taken advantage of an offer that allows you to pay very little interest on new purchases over a certain period, this can be worth your while. This offer is usually only available for new credit cards, so it is worth shopping around.

Another good thing about making your purchase on a credit card is that if you later find that the car is faulty, you can seek compensation through your credit card company. This may be easier than trying to deal with the car dealership directly.

If you have a high interest rate and you know it is going to take you a long time to pay off the balance on your credit card, this will not be a cost-effective option for you and there are better ways of making your purchase.


A lot of cars are bought with loan agreements. This can be a great low-cost way of financing a car purchase without having to part with too much money upfront. Shop around for the best loan rate but beware that these are not necessarily available for every applicant. If you have poor credit, you may be offered a higher loan rate than the one that is advertised. Depending on your credit history the loan company could even turn down your application. Make sure you know what loan rate you will be offered before you agree to the loan and find out what your monthly repayments will be.

One way of making a loan cheaper is to take it out over a longer period. Most loan companies will offer a term of around five years.  This can be tempting but remember that the longer it takes to repay the loan, the more interest you will pay on it. A longer-term loan will not work out cheaper overall although it will reduce the monthly payments. Do your homework before you take out a loan.

Another thing to consider is that most people only keep their car for an average of three years before they buy a new one. Therefore, if you take out a loan over a longer term, there is a chance you will be paying for the car long after you have gotten rid of it.

Auto Loan Financing

Car financing is an option if you want to pay for a car in instalments rather than paying a lump sum. You pay over a set period with the option to pay off the balance once the term has ended, or trade it in for a new car and another finance agreement. Auto Loan Financing with a company such as Clutch can be a great way to finance your car. Their online finance calculator will help you to find the best finance option for you and it only takes a few minutes to go through online. You can be pre-approved and then all you must do is go and find the right car for you.

Don`t Forget to Negotiate

However you decide to buy your car, don`t forget to negotiate with the dealership so that you get the best price. This could save you a few hundred dollars off the advertised price and the salesperson may even throw in some free incentives too depending on how much they want to sell the car to you. This may seem a little daunting, but it could be well worth your while. The worst they can do is say no.

As with anything, it is always good to know that there are several options open to you, and buying a car is no different. Decide which one works best for you and do your homework before you settle on one agreement. Don`t be afraid to shop around for the best deal and you could save a lot of money.