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Car Financing Tips for First Time Car Buyers

There are pros and cons to using a financing facility from a financial institution rather than a car dealer directly. Whatever you decide  there are a few things you should keep in mind. Your  monthly payment amount, if you should lease or buy and how much you should spend are all very important factors.

Monthly Repayment

The monthly repayment should not be more that 20 percent of your disposable income and the repayment amount should include your fuel and insurance. The ideal car loan should be paid within 3 or 5 years because long term loans tend to cost more in interest over a period of time.

This Auto Financing Guide from World Car Nissan shows the different amount of finance you will likely pay before you pay the car off. The take home message here is that the longer you take to pay off your car, the more interest you will pay. As you can see from the graph from World Car Nissan’s finance guide, the amount that you end up paying for your car can be significant. While smaller monthly payments me seem appealing in the short term it will cost you much more in the long term.

To Lease or Buy? That is the Question

Some people prefer to lease but in leasing, you will return the car after a period of time or buy from the owner at a predetermined price which is higher than buying the same car from a second hand dealer. A car loan ensures that you own the car after a down payment and the only costs after include fuel, insurance and repairs. Separate financing from the car purchase allows you to focus on the quality of your car and the best way to repay the loan.

One of the questions people ask is whether to sell an investment or save up to pay for a car, or borrow at an interest rate. Buying from your investment is like robbing from your future and you might pay dearly in penalties and taxes. Consider whether cashing out your taxable income can have any tax implications or whether you will need that money in the next few years.

Review Your Credit

Before applying for a major investment like buying a car, it’s very important to have your credit reports and scores checked by all the three credit agencies. There should be no errors and if you have some past issues, prepare yourself to explain them and clearly show the circumstances that led to them. The federal law entitles everybody to a free copy of their credit report every year, but the cost of obtaining the report anytime is very affordable. Your credit score is an important document when shopping for a loan.