Monday, February 15, 2010

Car Loans

Let's stick with the car theme.

We've already covered shopping for gas.  Plus we threw in an emergency light just to be safe!  Now it's time to look at financing that new car.

If you've figured out what car you want, the next step is to figure out how to pay for it.  If you've got the cash, then skip the rest of this post.  If you're like the rest of us, you'll need to borrow for it.  Here's a list of places, in order of preference, to look for the cash to pay for that new car:

1. Your Deferred Compensation / 401k plan.  Many plans have loan features that include low interest rates, quick approval, and interest payments deposited directly into your account.

2. Home Equity.  If you own a home (and still have equity left), consider taking a home equity loan or line of credit.  Interest rates are often competitive and, in most cases, the interest is deductible.  A 7.5% equity loan will have a "real" rate of around 4.5% after taking into account the tax deduction.  Fine print: consult your tax adviser because deductibility depends on many different factors.

3. Car Loan.  When all else fails, car loans are probably your last resort.  Often, the bank where you conduct most of your business will be the easiest from which to obtain a loan.  Shopping online for a car loan is helpful, too.

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