Many people depend on a car, but not everyone has saved enough money to be able to pay for their ride directly out of their own pocket. Nowadays, you have several options for financing a car. The classic way is the car loan. In our guide, we explain exactly how such a loan works, what you should look out for and what other alternatives there are.

CAR LOAN: WHAT IS IT?

A car loan is an installment loan for a specific purpose. You can use it to buy a new car, used car, motorcycle or motor home - but also to repair a car you have already bought. The car financing should be between 3,000 euros and 50,000 euros. The loan is repaid monthly over an agreed term with constant loan installments including interest. In most cases, a car loan is cheaper than an installment loan for free use, since the bank has additional security through the financed vehicle. If you take out a car loan with an independent bank, you can benefit from the cash discount.

LOW INTEREST RATES THANKS TO EARMARKING

A car loan is, as already mentioned, an earmarked loan that can be used to finance a car or to convert or repair a car. As a borrower, you will be required to sign a collateral eligibility, and provide a copy of the registration certificate II, formerly vehicle title, to the bank. Until the loan has been repaid in full, these two documents serve as additional security for the credit institution. If you, as the borrower, are no longer able to make the repayments due, the bank has the right to sell the vehicle. In this way, the bank can still settle your existing debt.

After you have paid the last installment, the vehicle title will be returned to you. You are then the legal owner of the car. Due to this earmarking and the better security, the bank can grant these loans at significantly lower interest rates than is the case with normal installment loans.

TAKING OUT A CAR LOAN: WHAT YOU SHOULD KNOW

Not everyone gets a car loan approved by a bank just like that. For example, if you want to buy a new car, you usually need a five-figure loan. A bank can't just take responsibility for that, despite the security. That's why we explain below what requirements must be met for a car loan to be approved and what else you need to look out for:

WHAT REQUIREMENTS MUST BE MET FOR A CAR LOAN?

The requirements and lending guidelines usually vary greatly from bank to bank. However, there are a few general guidelines:

• Permanent employment without a probationary period
• Regular income
• Flawless credit score
• Completion of the 18th year of age and legal capacity
• Main residence in the US

THESE DOCUMENTS ARE NECESSARY FOR A CAR LOAN

To take out a car loan, you must prove that you can pay the installments. To do this, the bank requires proof of income, such as the wage or salary statement. It also asks for the vehicle registration certificate, now called Zulassungsbescheinigung Teil II, since the vehicle serves as collateral. You also have to sign a transfer of ownership as security, which grants the bank ownership of the vehicle for as long as the loan is in effect.

TAKE OUT A CAR LOAN ONLINE

Consumers can find car loans at mostly favorable conditions, especially at direct banks on the Internet. When applying for loans online, in most cases there is no personal contact between the bank employee and the borrower. Meanwhile, car loans can not only be compared online, but also concluded directly there - and without having to submit any paper documents. As a consumer, you can simply send all the necessary documents to the bank via document upload. There is also the option to sign the application with a digital signature. In addition, there is an identification procedure via video, which can be done quickly either on a laptop with a webcam or via smartphone. This allows the bank to verify their identity quite easily.

For those who do not want to pose in front of the webcam, there is of course also the option of submitting the documents quite classically by mail. With the Postident procedure, you can also have your identity confirmed by a postal employee.

CAR LOAN: A COMPARISON CAN BE WORTHWHILE

If you simply go to your local bank and apply for a car loan, you probably won't get the best possible terms there. It is worth comparing car loans. Comparison portals offer good guidance in this case. However, you must bear in mind that when you make an inquiry at a bank, you will only be given a reasonably binding interest rate if you provide a lot of personal information about yourself and your financial situation. So if you make inquiries at many banks, you will have to pass on your data correspondingly often.