WHEN DOES A CAR LOAN MAKE SENSE?by Admin | April 13, 2021
In certain cases, for example in the case of special promotions or special offers, it may be more favorable to arrange vehicle financing through the manufacturer or the dealer. Which loan option is the most favorable depends on the price of the vehicle and the conditions under which the manufacturer or the bank grants loans.
FINDING THE RIGHT CAR LOAN
Whether you get a car loan and what interest rate the bank charges depends on your financial situation and how the bank assesses the risk that you may not be able to repay the loan. This is called the customer's "credit score." To estimate this, each bank has its own calculation and its own principles. Your salary plays a role, as well as other financing obligations, such as alimony payments. The bank also checks your Schufa file. It may therefore be worthwhile to check this before seeking credit and have it corrected if necessary.
CAR LOAN, EVEN IF ENOUGH HAS BEEN SAVED?
If you have enough money on the high side, for example, on a call money account, you should think carefully about whether you really want to take out a car loan. Sometimes the favorable financing offers of the dealers are tempting, but in the end an expensive solution. The higher costs and the loss in value of a car immediately dissolve the interest advantages of the car loan. So if you have enough money in a savings account or call money account, you should think twice about whether a car loan is the best solution. But if you do decide to go for it, you can arrange a high down payment and save on interest.
CAR LOAN: WHAT'S IMPORTANT AFTER THE DEAL IS DONE
Finding the cheap car loan is not the only thing that matters in one. Of course, you still have to take care of the financing after the contract is signed.
THE RIGHT OF REVOCATION
Under any credit agreement that you conclude as a consumer, you have a 14-day right of withdrawal. The bank is obliged to inform you of this. So if the loan is no longer needed during this period, you can revoke it immediately.
A loan can be cancelled or repaid early at any time. However, the banks are then allowed to demand compensation, a so-called early repayment fee. This is capped at one percent if the loan runs for more than twelve months. For shorter terms, the cap is 0.5 percent. However, some banks waive this compensation completely.
WHAT IF YOU CAN NO LONGER AFFORD THE INSTALLMENTS?
If you suddenly can no longer pay your loan installments for other reasons, it can be expensive: The bank then charges not only the agreed interest rate, but also additional interest on late payments. In addition, you as the borrower will receive a reminder letter. You should then settle the arrears promptly, otherwise you risk having your loan terminated. If this occurs, the entire outstanding loan amount must be repaid at once. To prevent this, you should contact the bank immediately if you run into payment difficulties. Solutions to this problem include rescheduling the loan or selling the financed car.
Tip: Some banks advertise flexible installment breaks. This means that they can pause your loan for one or even several installments if you cannot pay them at short notice. The loan agreement is then automatically extended by the paused months.
ALTERNATIVES TO THE CAR LOAN
Of course, a car loan from a bank is not the only way to finance a car. There are now numerous options customers can fall back on when they need a car - we'll show you what they are
Car dealers and manufacturers usually offer customers the option of financing the vehicle directly at the dealership via credit from the corresponding manufacturer-affiliated car bank. Such an offer usually convinces with favorable conditions, often even zero-percent financing is possible. However, these special offers usually only apply to special models, equipment, new cars or are tied to a promotional period. In addition, financing through the dealership or manufacturer often involves a down payment. If you as a consumer cannot pay for this, there is rarely an opportunity to take advantage of such a variant. In addition, it usually goes through an affiliated bank that wants to make a profit on the car purchase. What the bank loses through the interest is then made up for through a higher price.
Note: Beware of cheap dealer financing that is linked to car insurance. In most cases, the insurance contract is tied to the financing, so you can only change it when the car is paid off.
LEASING INSTEAD OF A CAR LOAN
As a consumer, you have the option of using leasing to purchase a new car. With this financing option, you rent the car for a fixed period of time. Usually, it is returned to the lessor at the end of the contract period. Optionally, you can buy the car at the end of the leasing period and then pay only the residual value of the car. Similar to a car loan, with leasing you also have to transfer a constant amount to the lessor every month. This is usually a credit institution affiliated with the manufacturer. This variant is an option especially for consumers who like to change cars every year or always want to drive a new model.
ALSO AN OPTION: BALLOON FINANCING
The advantage of balloon financing is that the monthly installment is comparatively low because it is earmarked. At the end of the term, you repay a large part of the loan with a high final installment. As a rule, no down payment is required for this variant. It can be applied for as dealer financing and through an independent bank. This financing with the high final installment is most suitable for you as a consumer if you expect to make a large payment during the term. However, if you are unable to pay the final installment, you may incur additional costs due to follow-up financing. In addition, this option does not give you the option to return the car.
However, if this is still a deciding factor for you, there is still three-way financing. This basically works like balloon financing. But at the end of the term, you have the option of returning the car instead of paying the final installment.