How to choose your car loan
In case of need, or desire, to change vehicle, the car loan is a financial solution available to those who do not have sufficient funds. It is a type of consumer credit; therefore, its amount must be in a range between € 200 and € 75,000 for a repayment period of more than 3 months.
Most credit institutions set a limit for this duration: for a car loan, the maximum duration is generally between 72 and 84 months (i.e. between 6 and 7 years). This is why the minimum price for a monthly payment is actually not often 200 €.
Some elements to choose the right car loan ...
The car loan according to the age of the vehicle
A car loan simulation was carried out with several credit institutions according to the date of first entry into service of the desired vehicle. Most of the offers distinguish three situations depending on whether the auto loan is used for the purchase of a new car, a used car less than 2 years old or a used car more than 2 years old.
Overall, credit organizations offer similar offers for the first two situations. Indeed, whether the auto loan is used to finance a new car, or less than 2 years old, the sum of the interest paid will be identical. However, if the car is more than 2 years old, the fixed lending rate and the fixed APR are higher than in the other two previous situations - in other words, the amount of interest received for this type of car loan will be higher. , as well as the amount of optional insurance offered.
Reminder: The fixed lending rate corresponds to the interest rate of the loan. Fixed, it allows you to know in advance the amount of monthly payments and the duration of the loan, unlike a revisable lending rate which, for its part, is referenced on an index varying according to economic, financial, stock market or monetary factors. The APR - annual percentage rate of charge - represents all the compulsory costs for obtaining a loan and therefore in particular the borrowing rate, commissions, etc.
In addition to the question of the amount, credit institutions also differ their auto loan offers, depending on the age of the vehicle, from the point of view of the repayment period granted. Indeed, if a loan offer for the purchase of a new car can last up to 7 years, it will generally only be 5 years for the purchase of a used car. This difference is due to the fact that the duration of the car must not be less than the duration of the credit for the sake of financial security.
The acquisition of a vehicle for a young license
Several credit institutions offer young driver auto loan offers. Alternative to the classic car loan, it is suitable for young people who have just obtained their license and do not have large financial means. In addition, the price of young driver auto insurance is very high, a credit is often necessary to finance his first vehicle.
Most banks offer this type of auto loan with advantages tailored to beneficiaries: flexibility, staggered monthly payments in the event of a temporary cash flow problem, advantageous rates, etc. Even though the establishment does not offer this type of specific offer, very often commercial arrangements and advantages are made in the case of a young driver.
In addition to the young driver car loan, other solutions exist, the first of which is the student loan. Consumer credit without proof, any student can subscribe under cover of confirmation of the use that will be made of the loaned money. The advantages are an often very low rate, sometimes even a free loan, and the possibility of a deferred repayment.
Buy the car of your dreams: car loan or rental?
An auto loan does not simply buy a simple car for the sake of utility. Indeed, it is also the way to have a high-end vehicle even if obtaining a credit for the purchase of a standard vehicle is easier because of the small amount requested. However, the application for an auto loan will initially be the same whether the vehicle is a classic sedan or a sports car with the same proposed loan rate and term. It is only when negotiating with the credit institution that the borrower will indicate his choice. The monthly payments will then be more substantial with a risk of refusal due to an unsatisfactory financial situation.
However, leasing is also a financing option, an alternative to a car loan, to acquire a high-end car. It is a vehicle rental contract paid monthly, the duration of which is generally between 1 and 5 years. Useful if you want to change vehicle regularly, the sums paid each month are lower than in the context of a car loan because only the use of the vehicle is paid. It mainly comes in two forms: the LOA and the LLD. As such, it should be noted that most car manufacturers, including Porsche, offer private rentals (Porsche Lease) to benefit from a luxury car.
The LOA - Rental with option to buy, also called rental with promise to sell - allows the use of a car rented for a period known in advance before buying it. Please note that the customer is only the renter of the vehicle and he pays monthly payments during the period of use. At the end of the contract, the driver becomes the owner of the vehicle at a price lower than the original price due to the payment of rent. This redemption price is set when the contract is signed and an initial contribution is paid in advance.
LLD - Long-term rental - has several advantages when you know that a new car loses 25% of its value after one year. It includes many services such as maintenance, assistance, ... Unlike the LOA, the driver does not have to worry about the maintenance costs of the vehicle, he can change the car as he wishes but the automobile is in principle returned at the end of the contract.
Conclusion: Choosing the right car loan
Changing cars is expensive and buying a car is the biggest investment after real estate. This is why the auto loan should be carefully considered and not be taken lightly. It is the best solution for your needs if you want to keep a car for 5 years or more, take care of its maintenance and above all be its owner. According to a 2010 study by the Committee of French Automobile Manufacturers, 62% of new cars sold in United States were acquired on credit. A car loan is generally cheap since on average the APR is around 6% over 4 years for 10,000 € borrowed. Sometimes even, some credit institutions specializing in auto loans show an APR of less than 5%.
Before getting started, three great tips to remember:
1. Control of key data
Before taking out an auto loan, you must check several essential elements to know how to choose the best offer.
- Know the amount of your initial contribution: The higher it will be, the less there will be to borrow and therefore the less interest there will be to pay. Make sure you know your financial situation and needs.
- Compare the APRs of different organizations: As indicated previously, the APR is the annual percentage rate which indicates the overall cost of financing and not only the nominal rate of the credit.
- Appreciate the duration of the auto loan: It corresponds to the period during which the credit will be repaid. Longer, it allows you to spread the monthly payments but it also increases the overall cost of credit. Too short, the risk is not being able to repay each month (a tip: the total loans, including the car loan, must not exceed 33% of personal income).
- Check credit insurance: Useful in the event of serious problems (accident, death, etc.), they are sometimes compulsory but you should always check whether or not they are included in the offer made. In terms of car loan, it is important to check in particular what would happen in the event of theft of the vehicle.
2. Choose between a personal loan or an affected credit
The affected auto loan is intended only for the purchase of the vehicle. Linked to the sales contract, if it is not fulfilled, the credit is automatically canceled. In addition, its rate is often lower and generally includes additional services. A personal loan does not require any justification for purchase and allows free disposal of the borrowed money in return for an often higher cost of credit.
3. Play the competition
Banks are not the only ones to offer auto loan offers: credit organizations, insurance companies, car manufacturers, etc. so many other people to meet to have a range of choices and choose the best offer.
In short, an auto loan is not taken lightly. You have to make sure you study your needs and your situation before choosing the most advantageous and appropriate offer.