When buying a new car, little savings often come into play, because financing is often an attractive method. With a loan for the car, the focus is on an installment loan. By pledging the vehicle, providers can also provide low interest rates. However, the respective loan amount is not paid out, but the dealership or the seller receives the money.
What term is suitable for the car loan
The term of a car loan can be adjusted accordingly, but this should not be longer than the useful life. If it is a new model, it is also very advisable to take out fully comprehensive insurance, since in the event of expensive damage, the money can be used to pay the loan amount. Otherwise there is a risk of falling into a debt trap.
Many lenders even require fully comprehensive insurance as a service before taking out a contract, as otherwise no lending will be possible at all.
Check the financial situation
Before taking out a car loan, your own financial options should be carefully analyzed, because the installment payments must not exceed the budget. If there is a monthly surplus, this can be used to repay the monthly payments. In order to keep the burdens as short as possible for a financing contract, a manageable term should be chosen.
If there is also the possibility of contributing saved money to the financing, the monthly charge can be significantly reduced. In addition to the installment payments, the costs for insurance, tax and inspection and repair costs are also to be taken into account.
Requirements for a car loan
In order for a loan to be granted for car financing, some requirements must be met. To do this, the borrower must be at least 18 years old, because in Germany you are considered legally competent and can conclude your own contracts. In addition, the place of residence must be in Germany, as well as a valid bank account.
A great deal of attention is paid to creditworthiness, which requires permanent employment with an open-ended employment contract. The higher the monthly income, the easier it is to get a loan. In addition, proof of income is required, for example, a statement of the last three proofs, or a few bank statements where the monthly incoming payments are available.
What about the self-employed?
In most cases, those who are self-employed or self-employed require proof of income from the past two years, and proof of business administration is also required. The self-employed and freelancers are often seen as risk groups in lending because they are more likely to run into financial difficulties than employees with a permanent contract or civil servants.
In order to get a car loan anyway, it can be helpful to bring a guarantor into the financing. This guarantees monthly installment payments if the borrower gets into financial difficulties.
Car loans without Credit bureau
Another important point is the Credit bureau entry. Because before banks or credit institutions grant a loan, a Credit bureau query is started. If this is positive, it is a big plus. However, if there is a negative entry, for example because a loan is still outstanding or past debts exist, a loan is rejected in many cases. The information provided by Credit bureau is calculated on the basis of a score, the higher this is, the better for the customer.
Before a loan for a car is taken out, it is advisable to compare a number of offers, because the bottom line is that it saves a lot of money. In any case, your own reasonable limit should not be exceeded, as a vehicle will lose value over time.
Used Car Loan?
Those who are looking for a new vehicle often have to exhaust their financial resources in order to find a suitable vehicle. But even that isn’t always enough to pay for the vehicle. In this case, a used car loan is an option. With this, the vehicle can be paid for in order to be paid for piece by piece every month.
But even if the money to buy a used car is available, cheap financing can make sense. This gives you your financial leeway and you can keep reserves.
What are the requirements for a used car loan?
At many banks, the vehicle registration must be deposited with a used car loan. Unlike the financing of new cars, this condition is not set in stone and can be negotiated depending on the bank. Sometimes the bank does not request the vehicle registration document from the start. This has the advantage that it is much easier to process the loan payment, since only a regular loan application can be made without sending the vehicle registration document.
However, a higher credit rating is required for this type of used vehicle financing. Depending on the bank, the loan can also become more expensive in this case. That is why it is worth comparing the various offers very closely.
Financing through the dealership’s bank, your own house bank or a third-party bank?
There are many different ways to get a used car loan. The car dealership often advertises that special low interest rates are offered for certain used cars. In this case, however, the cheaper financing will usually be reflected in less scope for negotiation. Therefore, buyers should definitely seek credit offers from other banks.
The personal advisor can often make a good offer at the house bank, but only a comparison of many different banks can actually lead to a really cheap offer.
It can make sense to confront your own consultant with the cheapest offer from the comparison in order to give him the opportunity to undercut this. In the event that the advisor is not able to adjust the offer, you should not be afraid to switch banks at least for borrowing, because interest rate differences of 2-3% can already make a difference with a repayment phase of 3-5 years of 1-2 monthly installments.
What term should I choose?
There should be two points in the runtime. First of all, the term should not be selected until the end of the planned service life of the vehicle, as many repairs may be necessary in the second half of the service life. In addition, the interest burden on financing increases significantly if it is invested over a very long period. Therefore, a shorter term should tend to be chosen, if this is possible.
Examples of financing used cars
If you buy a vehicle for $ 5000 without a down payment at an interest rate of 2.99%, a rate of around $ 215 is due in order to achieve a repayment in 2 years. With a term of 3 years, the rate is already reduced to around $ 145. At an interest rate of 4.99%, the rate would rise to $ 220 in the first example and to $ 150 in the second example.
As another example, a vehicle for $ 25,000 with a down payment of $ 5,000 by trading in the old car. At an interest rate of 4.99%, it would take 3 years and 8 months to set a rate of $ 500 a month. And even a reduction in the interest rate to 2.99% would only shorten the repayment phase by one month.