Whenever a new car is to be acquired, the question of financing always arises. The consumer has the choice between three different ways of financing. Further illustration at hitomi-gyousei.com
Even if there is public transport, car-sharing models or car-pooling: many can not or do not want to do without their own car. But even an older used car already costs a penny of money. Consequently, the question arises as to how the mobile pedestal should be financed.
There are various options for the consumer into consideration. The three most important models for financing a car are the following overview. Since a purchase for private purposes is assumed, there are no possible tax advantages of the respective type of financing.
Financing model: the cash purchase
Any financing that relies on outside funding will incur additional costs. If the necessary money is available, the consumer should therefore opt for a cash purchase. An exception would only be made if the money has already been invested or can be invested in such a way that the credit interest rate is significantly higher than the interest charge through debt financing. Given the current level of interest rates, this case is likely to be extremely rare.
A cash purchase not only offers the advantage that there are no additional costs. Instead, the consumer can sometimes negotiate a good discount if he pays the vehicle directly. Instead of a discount on a new car is also conceivable to agree on an additional equipment or extended services. Another plus point may arise with regard to motor insurance. Because many insurers offer a discount if the vehicle was financed by cash purchase.
Financing model: debt financing
In many cases, your own funds will not be enough to pay for the car. Around two-thirds of all new vehicles registered in Germany are financed by borrowed funds. If the consumer needs a loan to finance his car, he has the choice between different providers:
- A credit at the house bank : The credit at the house bank will be the most expensive alternative in most cases. Because with the conditions of a car bank or a direct bank, the house bank will rarely be able to keep up. On the other hand, the house bank will often be more willing to grant a loan, if the conditions are not optimal, than a foreign provider.
- A loan from another bank : To find the cheapest possible deal, the consumer should always compare several loan offers. Because the consumer is not obliged to turn with his loan request to his house bank. In a credit comparison, which is easily possible via online comparison portals, the term, the annual percentage rate and the total cost are the three most important criteria. However, the consumer should take a close look when a bank promotes particularly favorable terms. Because often are sold together with the loan agreement packages that include, for example, a residual debt insurance or insurance for illness or the occurrence of unemployment. Since the costs of such additional packages are not included in the effective interest, the bottom line loan can be significantly more expensive than initially thought.
- A loan at the dealership’s bank : Many car dealerships also offer financing and advertise with very favorable conditions or even 0 percent financing. However, the consumer can only figure out how good an offer really is if he carefully calculates and compares the offer with the credit offers of other providers.
Regardless of whether the house bank, another bank or the auto bank is the lender, it is always true that this is a consumer loan contract. And a consumer contract is subject to special requirements. For example, the lender must provide all relevant information about the loan and inform the consumer of the existing right of withdrawal.
When choosing the lender, the consumer should pay attention but one point: If he takes the loan at his house bank or another bank, he is the car dealer to the cash payer. And at a cash purchase, the consumer has the opportunity to negotiate a decent discount. This discount, in turn, can quickly offset the perhaps slightly higher lending rate.
On the other hand, if the consumer finances the vehicle through the car dealership bank, he usually benefits from very favorable conditions. However, he will not be able to negotiate discounts, but usually have to pay the full price. The bottom line is that it can be even more expensive. For example: The car dealer offers financing with an effective interest rate of 2.9% and a maturity of 48 months.
At the house bank 7% interest is due for the same loan amount and term. At first glance, the offer of Autobank seems much cheaper. If the consumer bargains with the dealer but a discount of just under 7.5%, he secures the same conditions as at his house bank. If the consumer can get an even higher discount, the credit of his bank is even cheaper. There are dealer discounts of 10% and more quite within the usual. It is worthwhile to calculate well.
Special forms of car loan
In addition to the classic installment loan, there are two special loan models for financing a car. The first variant is the balloon loan. In the case of a balloon loan, the consumer makes a down payment at the beginning, then pays monthly loan installments and ends the loan at the end of the term with a final payment.
The monthly loan installments are usually very cheap with the balloon loan. But especially the final payment is very high, it can make up to 65% of the loan amount. If the consumer can not afford the final payment, he needs follow-up financing. It is often quite expensive.
The second variant is the three-way financing. It works similar to the balloon loan. Even with the three-way financing, the consumer pays a down payment and low monthly payments. However, unlike the balloon loan, at the end of the term, the consumer can choose to return the vehicle to the dealer, buy the vehicle through a final installment, or continue to finance it. In both forms, the costs are difficult to estimate. And there may be inconsistencies in determining the residual value of a vehicle return. Therefore, the special forms of vehicle financing should be treated with caution.
Financing model: the leasing contract
While leasing has long been of particular interest to business people, more and more private individuals are discovering this form of financing for themselves. The lease is, very simply explained, a kind of lease.
The consumer does not become the owner of the vehicle. Instead, the vehicle is left for use. Usually, a bank buys the vehicle as a leasing company. The consumer becomes the lessee and can use the vehicle for a certain period of time. For the use he pays monthly installments, which are counted on the purchase price.
At the end of the contract period, the consumer can then return or buy the vehicle. Leasing is also available in different variants. Often a loan is for the consumer but the cheaper alternative.