In case of need, or desire, to change the vehicle, auto loan is a financial solution available to those who do not have sufficient contributions. It’s a type of consumer credit; therefore, the amount must be in the range of € 200 to € 75,000 for a repayment period of more than 3 months.
Most credit institutions set a limit for this period: for a car loan, the maximum duration is generally between 72 and 84 months (ie between 6 and 7 years). Therefore, the minimum price of a monthly payment is actually not often 200 €.
Some elements to choose your auto loan …
Auto loan following the age of the vehicle
A car loan simulation was carried out with several credit institutions according to the date of first launch of the desired vehicle. Most offers distinguish three situations depending on whether the auto loan is used to purchase a new car, a used car under 2 years or a used car over 2 years old.
Overall, credit agencies offer similar offers for the first two situations. Indeed, that auto loan used to finance a new car, or less than 2 years, the sum of interest paid will be identical. However, if the car is more than 2 years old, the fixed debit rate and the fixed APR are higher than in the other two previous situations – in other words, the amount of interest charged for this type of auto loan will be higher. as well as the amount of optional insurance offered.
Reminder: The fixed borrowing rate corresponds to the interest rate of the credit. Fixed, it allows to know in advance the amount of monthly payments and the duration of the loan, unlike a revisable borrowing rate which is referenced on an index that varies according to economic, financial, stock market or monetary factors. The APR – annual percentage rate of charge – represents all the obligatory costs for obtaining a credit and therefore especially the borrowing rate, commissions, etc …
In addition to the question of the amount, credit institutions also differ their car loan offers, depending on the age of the vehicle, from the point of view of the duration of reimbursement granted. Indeed, if a loan offer for the purchase of a new car can last up to 7 years, it will generally be only 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’s auto loan offers. Alternative to the classic auto loan, it is suitable for young people coming to have their license and not having big financial means. In addition, the price of the young driver’s auto insurance is very high raising, a credit is often needed to finance his first vehicle.
Most banks offer this type of auto loan with benefits tailored to beneficiaries: flexibility, spread of monthly payments in case of temporary cash flow problem, advantageous rate, …. Even if the establishment does not offer this type of specific offer, often arrangements and commercial benefits are made in the case of a young driver.
In addition to the young driver’s auto 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 to be made of the money lent. The benefits are often a very low rate, sometimes even a free loan, and the possibility of a deferred refund.
Buy the car of your dreams: auto loan or lease?
An auto loan does not simply allow you to buy a simple car for the sake of convenience. 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. Nevertheless, the demand for a car loan will initially be the same whether the vehicle is a conventional sedan or a sports car with an identical proposed rate and duration of borrowing. Only when negotiating with the credit institution will the borrower signify his choice. The monthly payments will be more consequent then with a risk of refusal due to an unsatisfactory financial situation.
However, leasing is also a financing option, an alternative to auto loans, to acquire a high-end car. It is a vehicle rental contract paid monthly and usually lasts between 1 and 5 years. Useful if you want to change vehicles regularly, the amounts paid each month are lower than in the context of an auto loan because only the use of the vehicle is paid. It comes mainly in two forms: the LOA and the LLD. As such, it should be noted that most car manufacturers, including Porsche, offer special rentals (Porsche Lease) to qualify for a luxury car.
The LOA – Rental with option to buy, also called rental with promise of sale – allows to use a car rental for a period known in advance before buying. Attention the customer is only tenant of the vehicle and he pays monthly installments during the period of use. At the end of the contract, the driver becomes the owner of the vehicle at a lower price than the original price due to the payment of rents. This redemption price is fixed at the signing of the contract and an initial contribution is paid beforehand.
The 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 car as he wants but the car is in principle returned at the end of the contract.
Conclusion: Choosing your car loan
Changing cars is expensive and buying a car is the biggest investment after real estate. This is why the car loan must be carefully studied and not taken lightly. It is the solution best suited to his needs if you want to keep a car 5 years and more, take charge of its maintenance and especially be its owner.
According to a 2010 study by the Committee of French Automobile Manufacturers, 62% of new cars sold in France 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. Some credit institutions specializing in car loans sometimes have an APR of less than 5%.
Before embarking, three great tips to remember:
1. Control of key data
Before subscribing to a car loan, it is necessary to check several essential elements to know how to choose the best offer.
- Know the amount of your initial contribution: The higher it is, the less you have to borrow and therefore the less interest you have to pay. You have to make sure you know your financial situation and your needs.
- Comparing the APRs of different organizations: As mentioned above, the APR is the annual percentage rate of charge which indicates the overall cost of financing and not just the nominal rate of credit.
- Appreciate the duration of the auto loan: It corresponds to the period during which the credit will be refunded. Longer, it allows to spread the monthly payments but it also increases the overall cost of credit. Too short, the risk is not to be able to repay each month (a tip: total credit, including auto loan, must not exceed 33% of personal income).
- Check credit insurance: Useful in case of serious problems (accident, death, …), they are sometimes mandatory but it is always necessary to check whether they are included or not in the offer that is made. In terms of auto loan, it is important to check in particular what would happen in case of theft of the vehicle.
2. Choose between a personal loan or an assigned credit
The assigned auto loan is intended solely for the purchase of the vehicle. Linked to the sales contract, if this does not happen, the credit is automatically canceled. In addition, its rate is often lower and generally includes complementary services. A personal loan does not require any purchase justification and allows the borrowed money to be freely disposed of in return for an often higher credit cost.
3. Play the competition
Banks are not the only ones to offer auto loan offers: credit organizations, insurance companies, car manufacturers, … so many other contacts to meet to have a range of choices and choose the best offer.
In summary, a car loan does not subscribe lightly. Care must be taken to study its needs and situation before choosing the best and most suitable offer.