Car financing has been around for almost as long as cars have been around. Nearly everyone in the world has to buy a car with finance since few people have enough available capital to buy a car in cash. In most cases however, it is also preferable for even someone who can afford to buy a car to finance the vehicle. There are several advantages which financing gains for someone.
One of the most important advantages of financing a vehicle, especially when an extremely low interest rate is an option, is the money it can save you. There are situations where it will not have any ability to save a person any money, especially if the vehicle is fairly inexpensive or the person is unable to obtain a good interest rate.
For people who are able to obtain a low interest rate, or even no interest rate in some circumstances, financing a car is a great option because it allows them to keep their money for the length of the loan term. If they are able to place their money in any form of interest bearing account or investment which earns a higher APR or annual percentage rate than what they are paying on their vehicle then they actually stand to come out slightly ahead.
Another major advantage of buying a car with finance is related to the dealership. Dealerships are designed to make a profit so they will generally look for any method they can possibly find to make a profit. One area that many dealerships make a profit is on the financing of the vehicle. In most cases the dealership itself is not extending the financing but they usually receive a kickback from the financing company as a reward for selling the financing. This benefits the dealership and also the car buyer.
Typically, a dealership will be relatively unwilling to work with a buyer who is looking to pay for the car in full. This is due to the fact that in most cases very little profit margin is actually built in to the cost of the vehicle so they need to sell it for the ticket price in order to make any form of profit.
When you are looking to buy a vehicle with financing they are often far more willing to work with you on the price of the vehicle, or even the amount they are willing to offer you to buy off your old vehicle. This is due to the fact that they will be able to make profit through the financing instead of strictly through the vehicle. In many cases the amount of money you will pay in interest over the course of the loan will be little, if any, more than the amount of extra money you will pay to buy the vehicle in cash.
There are some limited circumstances where it is not advantageous to buy a car with finance. One of the first, and most important steps you can take when you are considering purchasing a new car is to weight all the different options you have available to you to pay for the vehicle to determine which one will offer you the lowest price over the long run. This will ensure that you receive the best possible deal when buying a car