Best Ways to Finance a New Car

by Erica Starr 18. May 2016

So you've found your dream car, and now comes the hard part: paying for it. Most people don't have the means to pay cash for a new car.

Financing a car

That's why there are alternatives for financing. Here's a primer.

To buy or lease?

Leasing allows you to drive a nicer car without the hefty costs. You'll usually have lower monthly and down payments than with purchasing, as well as reduced repair costs since the average three-year lease expires before the vehicle's warranty does. You pay sales tax only on the portion of the car that you finance.

Here's the catch: You never really own the car. It's similar to renting a car for several years. At the end of the lease, you'll pay for wear and tear, as well as any miles that you drove over the limit, which is typically 12,000 to 15,000 a year. It can also be costly to terminate the lease early.

With a lease, you'll always have a payment. It's a great short-term option, especially if you like to buy and trade in cars regularly, but the costs add up over time. In contrast, when you buy, there will be — eventually and ideally — a period of several years when you aren't making a car payment.

If you tend to drive cars into the ground, buying is a better option financially. There is more flexibility in selling, you have no mileage charges, and you can save money in the long run.

There are advantages and drawbacks to both options, so consider your budget, lifestyle and driving needs before deciding.

Can you use a credit card?

Most dealers allow you to pay only a small portion of a car's price with a credit card. Dealers have to pay a credit card transaction fee, generally 1% to 3% of whatever was charged on the card. Since dealers typically have a profit margin of only a little over 2%, they aren't interested in sacrificing it to a card company.

So should you put at least part on a card? It depends. If you can get a 0% interest card and you'll be able to pay it down during that introductory term period, it may be worthwhile. Otherwise, it's probably best to stick with a traditional loan.

What other financing options exist?

Don't confine your financing search to just the dealership. Your local financial institution is more likely to offer lower rates, which means less interest paid over the life of the loan.

With financing in hand, you can focus solely on getting the best deal and turning your dream car into your real ride. 

 

Related Posts:

What You Need to Know Before Buying Your First Car

The Ultimate Decision: Buy or Lease

The 5 Must-Haves For Selecting a Commercial Banking Partner

by Eric Johnson 21. April 2016

There’s much at stake when it comes to choosing a good bank for your business. More than just a payment processor and cash depository, an excellent bank is a business partner. Your banker should be a key advisor on everything from setting up bookkeeping to deciding whether to open up more locations; a “seal of approval” to potential customers and vendors; and even a gateway, opening doors to your community’s business circle and providing key introductions.            
     
That’s why we’ve put together these five tips you can use to find a bank that best fits your business.

1. Know Your Needs

Start with the basics: Identify what kind of checking and savings accounts you’ll need. Consider the number of transactions you’ll make per month and the lowest amounts you’ll keep in those accounts. If you plan on doing online business, do you want a separate merchant account for that? The types of business accounts banks offer – and how much they charge – vary widely.

Also consider if you’re going to need loans, whether you need local branches (do you have to make cash drop-offs?), and if you have online/mobile banking needs.             

2. Consider the Relationship

Whatever size your business is today, you’ll likely need advice and face-to-face interactions from your bankers as you grow.

If your bank is truly a partner, then you’ll want a partner who knows you. So ask some questions: Where are lending decisions being made, and by whom? Will you have an opportunity to meet with the person making the decision, or will decisions be made by a central authority in another city?

Can you speak with your banker when you need to, or will your questions by some call center? It’s easy for a bank to be there for you when business is good, but who will be there if things go cold for a while and you need advice about, say, smart ways to cut costs? Will your banker return your call? Will he or she know how to help you?

3. Consider Your Options       

Generally, you have four options: big banks, local banks, Internet banks, and credit unions. Each has its advantages and disadvantages.

National banks have lots of locations solid online services. However, they’re often disconnected from the communities they serve, won’t always make time for small or even mid-sized customers, and can be tight with their lending practices, especially during economic downturns.

Credit unions, on the other hand, are deeply connected to their communities and, because they are nonprofit, usually offer lower fees. However, they cannot always lend to small businesses and sometimes lack robust online features and mobile services.

Community banks account for 50 percent of all small-business lending, even though they control just 18% of all U.S. bank assests. That's becuase they gnerally offer the best and most face-to-face interaction, and they generally work hard to cultivate relationships with local businesses. Ineed, they can sometimes be your connection to local customers and vendors.       

4. Talk to Everyone                                          

Talk to your business peers and personal bank to get an idea of which business banks offer the best services and have the best reputations. If you can, get referrals to the banks at the top of your list. Referred customers are usually worth more and are more dependable. So they may be more likely to offer you better service and lower loan rates.

When you make on-site visits, look at the banker, not the bank. This is who you'll be working with. Again, you want a business partner, not a salesperson. Go in with a list of questions – and be ready to answer the banker’s questions. Consider this a two-way interview. Your relationship with your bank is a longtime collaboration, not a one-time transaction.

A great banker will introduce you to prospective clients and vendors; help you set up your accounts payable and receivable operations; and perhaps one day aid in your search for a controller or CFO. Can you see the person sitting across from you doing all that?

5. Reevaluate Regularly

Once you've chosen a bank, start building a relationship immediately. A solid collaboration leads to more likely loans at more favorable terms. It also leads to those critical ties to the local business community.

But don’t get too comfortable with your bank. As your business grows, a different bank may serve you better, so make a point to review at least annually whether your current bank continues to serve all of your needs.

When you do that review, ask yourself: When was the last conversation with my bank? What was it about, and who initiated it? When I call my bank with a question, do they call me back? How quickly? Do I actually like my banker?

According to a 2013 poll by Gallup, 32% of businesses were "actively antagonistic toward their bank. You don’t want to find yourself there.

A great bank is a rare and precious resource. So take time and effort to make this important choice. And to set up a conversation with one of our Commercial Relationship Managers, just reach out

When Debt Can Be Good For You - And When It's Bad

by Erica Starr 11. April 2016

It's next to impossible to go through life without accruing some debt. The good news is that some loans can be healthy and even productive, which means there's no rush to pay them off. Other debts should be erased more quickly. Here are a few examples of debt that can help — and hurt — your financial health.

Good Debt

Student Loans

As overwhelming as education loans can be, how you handle this debt can actually boost your credit. The three major credit bureaus — Experian, TransUnion and Equifax — consider this debt as a type of installment loan. So if you make payments in full and on time each month, you build up a good credit history, which future lenders will recognize. More specifically, properly handling student debt can boost your credit score.

Education loans can also help decrease your taxable income. On your federal tax return, the interest you pay on loans can be deductible up to $2,500 or the amount you paid, whichever is lower, provided you meet certain qualifications.

Plus, student loans tend to have more manageable interest rates, in the single digits, compared with other forms of debt such as credit card balances. The standard amount of time to repay federal education loans is 10 to 25 years, depending on the loan.

Mortgage loans

Like student debt, a mortgage is an installment loan. As long as you make monthly payments in full and on time, you can maintain or improve your credit. The interest you pay can also be tax-deductible.

Mortgage rates and terms can vary, which can affect their quality as good or bad debt. A fixed-rate loan's payments won't change over its term, which can make paying it easier to manage. Paying an adjustable-rate mortgage can be more challenging after any fixed-rate introductory period ends if the market pushes the rate — and the payment — higher.

Auto loans

You can help your credit score rise by making full payments on time on an auto loan. You'll also help your auto-enhanced score, which looks at auto credit history, including any vehicle repossessions or bankruptcy effects. But cars depreciate with time and use, so try to avoid winding up owing more than a car is worth. This can happen if you latch onto a loan that doesn't require a down payment, or where the monthly payments are low and the loan lasts for six or more years.

Bad debt

Crecit card balances

A credit card gives you access to a revolving line of credit, meaning you can use as much as the card limit, pay the money back and borrow it again. If you overuse a card, though, your credit score can drop. With cards typically carrying a double-digit rate, keeping an outstanding balance can mean paying thousands of dollars extra over time. The average household with a card balance owed $15,355 as of the third quarter of 2015.

Short-term loans

Short-term loans, either from payday lenders or lenders that demand property such as an auto title as collateral, can ensnare borrowers in debt traps and lead to property losses while the annual interest rate can soar to over 400%, according to federal regulators. This is one of the most potentially harmful sorts of borrowing.

Whether debt is good or bad relates to how it may affect your finances. Using debt to invest in your home can build equity, and education debt can lead to a better job, both of which can pay off later on. Short-term borrowing and carrying high-cost balances are both unproductive and harmful to your credit.

When weighing whether to take on debt, make sure it's affordable so your financial health remains strong. 



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