At some point it is time again and the purchase of a new or used car is pending. However, it is often the case that the amount required for this is not in your own current account or that you simply do not want to attack the existing savings. Accordingly, in such a case, a car financing, but in which various advantages and disadvantages should be considered.
Here, a car loan, a classic installment loan or even a dealer loan offers.
Car financing is possible, for example, with the help of a car loan. Although this is a classic installment loan, but has a special feature: The banks do not give the loan for free use, but the loan is earmarked.
This means that only the desired car can be purchased with the respective loan amount. The bank usually demands corresponding proof here.
In addition, the bank usually retains the vehicle registration document until full payment has been received. Once the last installment has been paid, it, like the vehicle, becomes the property of the borrower.
Likewise, depending on the cost, it is also feasible to include a classic, discretionary installment loan. The loan amount can be used here, as you wish. For example, it is also feasible to treat yourself to some additional extras, such as some tuning measures.
Alternatively, however, a dealer credit can be claimed. A large number of car dealers offer their customers the option to conclude not only a purchase contract but also a loan agreement when they buy directly on site.
Specific advantages and disadvantages of the mentioned types of financing
Car and dealer loans and a classic installment loan each have their own advantages and disadvantages.
Anyone who decides to take out a car loan must accept the earmarking without which the loan will not be awarded. However, this does not have to be a disadvantage, because after all, you want to use this type of financing to buy a car anyway.
However, it is advantageous that one just because of the purpose limitation of a lower interest rate benefits and thus bares money saved. T
he reason for this is that the bank is required by the retention of the vehicle letter on a higher security:
Should the borrower, contrary to expectations, no longer be able to pay the installments, it is feasible for the credit institution to sell the vehicle and from the Purchase the resulting amount to repay the loan.
The fact that the sum of the car loan is transferred in an amount to your own checking account, it is also possible to pay the purchase of the car at the dealer cash. Accordingly, it is quite feasible to negotiate a cash discount.
On the other hand, when you take out a classic installment loan, which is given without a specific purpose, you are completely free to use the loan amount, which gives you enormous flexibility. On the other hand, it is disadvantageous that a higher interest rate than for a car loan is granted for this freedom.
Even with a classic installment loan, it is possible, as with a car loan, to pay for the selected vehicle at the seller’s bar and, in this way, possibly to get a cash discount.
The biggest advantage of a dealer loan is certainly that the loan agreement can be completed directly on the spot, when buying a car, and it is therefore not necessary to first pay the bank a visit.
However, it is often not known here that the loan is not concluded directly with the dealer, but with its cooperation partner, a bank, the loan agreement.
Thus, one usually enters into a loan agreement with a bank in such a case. A disadvantage here is, for example, that under certain circumstances increased attention must be paid to the fine print.
For example, a zero- per-cent financing, due to various other costs, can still turn into an unexpectedly expensive loan.
With a dealer as well as a car loan it can be also quite that the banks express different, further defaults. For example, it may be possible that only a certain brand of car can be purchased with the loan amount or that the car may not be older than X years.
General advantages and disadvantages of car financing
In a car finance but also general advantages and disadvantages must be considered.
One advantage of all three types of financing above, of course, is that it is possible to finance the desired vehicle. This is a quick and easy way to get to the often urgently needed car and even if there are no savings.
However, it must of course not be forgotten that when taking out a loan, a commitment is always made, which must be paid punctually and regularly every month. As a result, your own spending often increases very significantly. So, in advance, it should absolutely be recalculated whether the financial burden can be easily remedied.
In addition, a possible desired sale of the car during the loan period is usually not readily possible. Since in a car loan, the bank, and in a dealer credit usually the cooperating credit institution, until complete loan repayment owner of the car, the corresponding, contractually agreed conditions must be observed. So it may be that the sale is only feasible after consultation with the bank.
In addition, in such a case, the entire, remaining loan amount must be paid at once. An additional installment is therefore not possible. Incidentally, this also applies to the inclusion of a classic installment loan.
Accordingly, there is thus also the danger that in the case of a sale under certain circumstances an insufficient amount will be received which does not completely repay the loan amount. The remaining amount must then be paid by your own assets.
Continue to be observed
Likewise, there are other things to consider, making a more comfortable loan repayment possible.
Moreover, whether car loan, classic installment loan or dealer loan, it is always advisable to compare well the various loan offers from different banks. These often differ very clearly from each other. If you keep your eyes open and compare, you will usually spare your account.
Ideally, the APR is always compared here because only this one already contains all the borrowing costs that are due to the borrower.
In addition, free special redemption options are a good option to reduce the loan amount and thus save interest at the same time.
It may also be possible to suspend the payment of a monthly installment and / or to benefit from a variable repayment installment. So also offer the various special services not to despise relief.