Nowadays, the purchase of a car on the so-called car loan is no longer a rarity. On the contrary: statistically, every second new car for private use is financed by car loan. And also used cars are increasingly purchased by such a car financing. So far so good. But what is actually to be considered when financing for the car? And where can you apply for a cheap car loan?
What makes a car loan?
A car loan is a special purpose loan. That is, the car loan may serve only the following purposes:
- Purchase of new or used cars
- Conversion of new or used cars
- Repair of new or used cars
In a nutshell, that means you need to prove to the lender that you are really using the loaned amount for a vehicle. Often, therefore, the vehicle registration document for the vehicle over the entire credit period at the bank deposit. In addition, the vehicle registration document acts as security for the bank. If you suddenly become insolvent and can no longer pay off the car loan, the seriousness occurs:
The bank then has the right to sell the financed car in order to recover the borrowed money. Due to the earmarking and protection, car loans are usually offered on more favorable terms than an instant loan. As always, a car loan comparison between the different providers of car loans is recommended in any case.
Car loan or dealer financing
It happens again and again that consumers need a new vehicle, but this can not deny their own financial resources. In principle, it is possible to finance the new car through two different types of credit.
In most cases, manufacturers and car dealers directly in the dealership make the offer to purchase the desired vehicle through a loan from the manufacturer-owned Autobank. Under certain conditions, this is quite profitable for the buyer, because the offers of the dealers and manufacturers often score points with remarkably favorable conditions. Often, a new car can even pay for a zero-percent financing.
However, such offers usually only apply to certain features, specific models, a certain period of time or new cars. In addition, car financing without a down payment is not possible with many car dealers. So in order to take a dealership financing for the car, a down payment on the purchase price is required.
Since only a few consumers can use this payment option, a car loan to finance the car is the means of choice. But for the inclusion of a car loan at an independent bank speaks another fact: namely the cashier discount! If the loan is applied for buying a car from a manufacturer-based lender, car sellers have minimal room for discounts and discounts, as the respective financial institution also subsidizes the conditions for funding.
The situation is different when you take out a car loan from an independent online or branch bank. Here, traders usually offer lucrative cash discounts that are not to be despised. Because on average the savings from the discount are so high that they completely cover the additional costs for the interest.
Car Loan Calculation example
Let’s say you want to get a car for 20,000 euros. Get car financing via the dealer-owned bank, get 0% off and get a loan of 20,000 euros. The effective interest rate is 3.9% with a term of 5 years (= 60 months). The monthly installment including interest is 366.82 euros. This results in a total of 22,008.95 euros, which you must ultimately pay back.
The final amount differs significantly in a car loan through an online bank: Same purchase price, but with 10% cash discount from the dealer. The loan amount that you have to raise amounts to only 18,000 euros – a clear advantage. However, the interest rate amounts to 4.5% with the same credit period of 60 months. In the end, a monthly installment of 334.84 euros and a total amount of 20,090.18 euros are calculated. That translates into a handsome € 1,918.77 savings when the car loan is taken out to an independent lender.
Basic requirements for taking out a car loan
Normally, the application for a car loan is relatively simple and is quick. Of course, there are some criteria for lending that must be met. To be considered creditworthy, you must …
- to be of age
- Have their main residence in Germany
- to hold an account with a German banking institution
- to have a regular income
- and demonstrate sufficient creditworthiness.
By credit rating is meant in general the creditworthiness estimated by credit bureau and other credit bureaus due to past payment history, existing debts and other factors. The so-called credit score tells how probable it is that the consumer settles binding payment claims on time and in a contract. Here you will find further information for a car loan without credit bureau.
Conclusion to the car loan
In many cases it is beneficial to take out a car loan through an independent bank. Sometimes, however, it may be worthwhile to discuss the dealer’s car financing offer. What makes more sense in your individual situation can easily be determined online with a car loan calculator.
Further financing for the car: zero-percentage & balloon financing
For many, a zero-percent financing sounds very promising, after all, a loan without interest is a wonderfully cheap way to finance a new car. But as simple as it seems at first glance, it is not: Interest rates are quite charged – only these are factored into the purchase price. In addition, the terms of this type of financing are kept fairly short and the monthly payments are accordingly high.
Another alternative is balloon financing. Here it is so that after the expired credit period, the residual value of the car is to be settled as the final installment. Either you pay the remaining balance in a single sum, you complete an auto-financing or can even be returned to the dealer for a 3-way financing.
A balloon loan is difficult to handle. The greatest risk for the consumer lies in the dealer’s assessment of the residual value: too many driven kilometers and subjective impairments (paint deterioration, signs of wear on the upholstery, etc.) can lead to further payments on account.