If you need a car loan, you usually have the choice: either buy a dealer or go to an independent bank? In our article, you’ll find out how to save on a cheap car loan from an independent bank when buying a car.
A car loan is basically a normal installment loan . Most car buyers choose between dealer financing and a car loan from an independent bank. The car loan of an independent bank is usually equipped with an appropriation. Because of this, he offers better interest rates than an untied installment loan. Assignment means that you are required to use the loan amount for a car purchase. So you can not buy anything else with it.
Why does the bank grant better interest rates? Because the car is an equivalent and thus increases your credit rating . The car serves the bank as security, because in an emergency it can be sold and made into money. That’s why banks are more generous with interest rates, making car loans cheaper than dealer financing in most cases.
Car loan and dealer financing in comparison
Financing the car locally at the dealership sounds practical. It saves you the extra way to the bank, is fast and uncomplicated. In the case of a car loan from an independent bank, you have to invest energy and obtain offers yourself. But this investment is worthwhile, because independent banks usually offer better lending rates . In the following, we would like to explain to you what constitutes an independent bank car loan and dealer financing.
The lower the interest, the cheaper the loan. The usually good interest conditions for dealer loans are not automatically the best. Be especially alert when the dealer offers you a supposed zero-percent financing . That sounds very tempting at first. But the dealer certainly has nothing to give away. Often these therefore hit the still incurred credit costs on the vehicle price. Then the dealer credit is cheap, but the car more expensive than necessary. Or this financing is valid only under certain conditions, such as only in the context of a specific down payment on the vehicle price. So compare not only the dealer’s loan offer with car loans from independent banks, but also the vehicle price and equipment of other dealers.
Nevertheless, let us give you an offer from the dealer. Never close the loan directly on the spot, but take the papers home with you. So you have the opportunity to compare the terms of the dealer in peace with offers from independent banks.
For all credit offers: Make sure that you compare the annual percentage rate . This contains all ancillary costs and is therefore more meaningful than the low debit interest.
The banks of car dealers often offer car loans, behind which a so-called balloon financing hides. With such loans, the monthly installments are usually unbeatably low, but you do not pay for anything. After a few years, then a relatively high residual debt must be further financed, possibly at lower interest rates.
Often, the residual value of the car and the remaining debt are then no longer acceptable. A common car loan offers better repayment installments. Obtain an exact repayment plan before completing a car loan, and make sure that the remaining debt is not too high after the repayment term expires.
The best thing is still car loans that run so long that no residual debt remains. So you can be sure that after the agreed term and the full loan amount is paid off.
With a dedicated car loan from an independent bank you can negotiate discounts at the car dealer. Because with the purchase you already have the entire sum for the car ready. They act as cash payers, and such persons are especially welcome to traders. Here, cash payments of up to 20 percent of the purchase price can be achieved – depending on the brand, age and equipment of the vehicle a few hundred or even a thousand.
Incidentally, cash payment does not mean that you have to put all the money in the bank in banknotes on the table. Also, the transfer of the entire amount is considered a cash payment. This means that with a car loan from an independent bank, you can get the car cheaper again than if you were financing it through the dealer bank.
If you finish financing through the dealer bank, you can not count on such generous discounts. Because in order to be able to afford the low interest rates, dealers and dealer bank have to earn at least the car itself.
In summary, the amount of the cash discount you receive from the independent bank’s cheap car loan will, in most cases, exceed possibly slightly higher interest rates on this financing. Accordingly, they save more, despite somewhat higher interest rates, than with low-interest dealer financing.
Advantages of car loan
- Better interest rates
- Faster eradication
- Car registration remains in your possession
- Discounts for cash payer
Disadvantages of car loan
- You must obtain offers from independent banks yourself
- As a rule, the bank requires the completion of comprehensive insurance for the vehicle
Car loan and leasing in comparison
Leasing is another type of auto finance. When leasing you will be given a car at a monthly rate. It is in principle an atypical lease and not 1 to 1 comparable to a car loan. Nevertheless, we do not want to deprive you of this kind of car purchase.
Unlike conventional financing, the car does not belong to you when leasing . They should not therefore sell during the term of the lease. At the end of the term you have the choice to buy the car for a final balance from the lessor or to look for something new.
In the following, we would like to explain to you what leasing is and how it should be considered:
- Flexibility: On the one hand, leasing offers great flexibility, because you do not tie yourself to a vehicle or a car loan for many years, and in many cases you can configure your vehicle according to your wishes in advance. If you do not like the car, you can exchange it again after three years, for example.
- Use transfer : The vehicle is not yours. If your financial situation changes, you can not just sell the car. They rent the car in principle only. However, this limited freedom of use does not only apply to the sale of the vehicle. For example, if you want to have other rims mounted, you must first ask for permission from the lessor. They usually can not drive as many kilometers as they want. There is a contractually agreed annual mileage limit. On a mileage limit, however, you do not have to pay attention to a car loan, because there are none.
An exit from a current lease is also almost impossible. Unless the prospective buyer for the vehicle would take over the lease. In other cases, the lessor may claim damages from you.
- Low leasing rates : The monthly installments for a leasing vehicle are virtually unbeatable. Presumably you will never be able to drive a new vehicle with a car loan from an independent bank at such favorable rates as when leasing. But this cheap rate is often tied to certain conditions, such as a set mileage you can drive a year or a certain percentage down payment on the vehicle.
- Additional costs : You should look carefully in the fine print when concluding a lease. Oftentimes, hidden costs may add up to the leasing rate, which initially looks cheap. You want to drive more than 10,000 kilometers a year? This is reflected in the monthly rate. You do not want or can not pay 10 or 20 percent of the vehicle price? That too increases the rate.
It may also happen that, for example, you have to pay winter tires for the vehicle out of pocket. Also pay attention to whether the leased vehicle is insured by the lessor through fleet insurance or if you need to insure the car yourself. You also have to take care of the vehicle during the lease as if it were your own. You have to look through and to the main investigation – usually at your own expense.
When is leasing worthwhile?
At first glance, leasing seems to be more flexible and cheaper than a car loan, but the obligations and limitations can deceive driving pleasure and drive up leasing rates. It therefore applies exactly to calculate whether leasing is worth your needs or not.
With a car loan from an independent bank, you can not only drive as many miles a year as you want. You can also design your vehicle as it suits you, and you are the owner and not just the tenant of the car. In addition, a car in your possession increases your credit rating, because it provides a material security.
Important contract contents of a car loan
Regardless of whether you choose a dealer financing or a car loan from an independent bank: Both types of credit are similar in their fundamentals, as both are consumer loans. Therefore, the following tips apply equally to both: There are certain contract contents that you should take a closer look at.
Possible processing fees
In 2014, the Federal Court of Justice ruled that no processing fees for loans in general, including car loans in particular, should be levied. Nevertheless, check this point carefully. In particular, installment loans may not be allocated any costs for bureaucratic expenditures such as, for example, checking the creditworthiness of the customer.
Free total repayment
Although some auto loans allow the partial repayment of the loan, but no total repayment. In this case, premature sale of the car can be difficult. So make sure that free total redemptions are included in the loan offer.
You are financially well-fortunate in the conclusion of the loan and have thought about how much you can afford. Nevertheless, unforeseen events can lead to financial bottlenecks. Then you benefit from the possibility of taking a break from paying installments: in this way, you can temporarily suspend the loan without having to fear further consequences. If this option is not given, you will quickly get into trouble in such situations.
Remaining debt insurance superfluous
If the borrower is unable to repay the loan in the event of illness, disability or death, the residual debt insurance will apply . It makes financing more expensive and is often not necessary in the case of car loans, because other insurances such as occupational disability or term life insurance already cover these dangers. Therefore, it is important to consider the relationship between the amount of the loan, the duration of the loan, and the cost increases associated with the residual debt insurance. With short terms and low loan amount, it is usually unnecessary.
Arrangements for prepayment penalty
The prepayment penalty may not be too high. If you can repay your loan faster than you plan, the bank will often owe you a prepayment penalty that recoups your lost interest. By law, this may not be higher than a maximum of one percent of the balance. This is worth the early replacement in most cases anyway.
Important questions about the car loan
Finally, we would like to give you the answers to typically asked questions around the topic of car financing.
From which loan amount can I borrow a car loan?
We fulfill the desire of the dream car already starting from a loan amount of 2.500 euro.
Which requirements for a car loan do I have to fulfill?
First of all, it is advisable that you have already found your dream car and thus know what the loan amount that you need for financing will be. You still need to meet the regular requirements that apply to almost all types of credit: you must be at least 18 years of age, have a steady, steady income that allows you to settle the installments and have a good credit rating.
Is it necessary to pay a deposit if the vehicle is financed by a car loan?
No, a down payment on the vehicle from equity is not a must. For example, if your dream car costs 15,000 euros, you can also take out a car loan of this amount. However, through a down payment by equity, you reduce the loan amount that you must absorb. This in turn means that you have less indebtedness with the independent bank, the rate is lower and the total is settled faster.
How should the credit-financed vehicle be insured?
As a rule, the bank requires that the car is covered by a comprehensive insurance. That makes sense from the bank’s point of view. For if the vehicle suffered a total loss due to a self-inflicted accident or vandalism, this would not be insured in the part insurance. And as a result, the bank and borrower would be left without security for the current loan. Therefore, this regulation is actually useful not only for the bank but also for you as a vehicle owner.
How long does a car financing take?
The term of the car loan and the dealer financing you can usually choose according to your options. Depending on how long the credit lasts, you either pay high rates and pay the car off quickly. Or you pay lower rates, but are more committed to a loan. The duration is usually at least twelve months and extended by a further twelve months (24, 36, 48, 60 months, etc.).
Who keeps the vehicle registration during the credit period?
In the case of a dealer loan, the dealer bank generally retains the vehicle registration document as collateral. And until you have paid off the loan in full. If you want to sell the car in the meantime, you must first replace the loan.
In the car loan of an independent bank, you may keep the vehicle registration document normally. So you can also sell the car spontaneously, if you feel like it. Just make sure that the car financing allows a free total repayment, so you can replace the loan with the sale of the car.
Best rates for car loan
A bit of preliminary work has to be done, because you can not avoid comparing car loan offers. Simply delegate this to us: our rate credit specialists compare up to 25 well-known banks and select the right solution for you.
Full throttle with our car loans
Our local consultants have an overview of online banks, car banks and the car loans of other institutes. They show you in a personal conversation which options are available. So you can fully concentrate on the equipment of your new car. To take advantage of our service, simply request current loan offers from us.
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