Financing Your Automobile Purchase or Lease

So you're in the market for a car? As you've probably seen already, there are a number of decisions to make before you drive your new car off the lot. With the right tools, those decisions can be easy. This section is intended to give you the tools for you to make the right financing decision when it comes to buying or leasing your next car.

Buying a car can be an intimidating process. In addition to negotiating with the seller (dealer) the price of the car, you must figure out some way to pay for the car. A car buyer will usually "finance" the purchase of the car rather than paying cash. If you finance the purchase of the car, you will have to obtain a loan from a lender, such as a bank, finance company or credit union, or negotiate with the seller to accept payments over time (an installment sale).

If you obtain a loan from a lender, that lender will give the seller the money for you to buy the car. Then, over time, you must pay the lender back. If an installment sale, you will have to pay the installment seller (the dealer), or someone to whom the dealer sells the contract, such as a finance company or bank. In most instances, whether you obtain a loan or enter into an installment sale, you will be charged interest (also known as a finance charge) for your use of the money.

Leasing a car is similar to renting an apartment - you do not own the car, but instead pay the leasing company for the use of the car for a specific term. When the leasing period is over, you can give the car back to the owner and walk away (you may be subject to charges for excessive wear or mileage), or if the lease contains a purchase option, you can buy the car at the end of the lease term. The price is usually stated in the lease. You may even want to get a loan to buy the car at that point.
 

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