People planning to buy a car can finance its purchase with a car loan. This is a commitment given for a specific purpose, i.e. the funds can only be used to buy a new and used vehicle.
Car loan is a convenient way to finance the purchase of a car, especially for people who do not have cash for this purpose. However, over the years, there is a tendency for banks to withdraw from this type of loan for cash loans.
Before you decide which financing source to choose to buy a means of transport, it’s worth learning more about the car loan. We explain what it costs and what to look for when choosing an offer.
What are car loans?
A car loan is a type of purposeful commitment, i.e. one that is incurred to finance a specific purpose, in this case the purchase of a vehicle. Although the name indicates that it applies to cars, you can also buy trailers, motorhomes, motorbikes, scooters, quads, tractors and construction machinery for the funds from the loan. A car loan can be taken by both a natural person and a company to finance the purchase of a new and used means of transport.
You can apply for a loan both in the bank and in authorized car dealerships. It is not uncommon for those from dealers to be cheaper than in a standard bank, and there is also the option of price negotiations. The car loan calculator, which is available on many websites, can also help you choose an offer.
Which car loan should you choose?
There are several types of car loans on the market that allow a potential customer to adapt his repayment form to his financial situation.
The first is a standard car loan, which consists in monthly repayment of principal and interest installments for the time specified in the loan agreement. Another type requires the borrower to have own funds that correspond to 50 percent. be 60 percent car values. This is a loan with only one installment on its schedule. The customer after paying 50-60 percent (the so-called 50/50 loan or 60/40 loan), the subsequent funds are to be settled after the time specified in the contract, e.g. a year. The advantage of this form of financing is the lack of interest, thanks to which the buyer has a chance for a cheap loancar. Balloon credit is another type. The customer makes regular repayments, but they are of a lower value because they constitute, e.g. 80% car values. The last installment is equal to the remaining value of the car (20%).
What to look for when choosing a car loan?
When choosing the cheapest car loan, first of all you should pay attention to the interest rate (car loans ranking or car loan comparison may be helpful ). In addition, it is worth checking the amount of commission, total cost of the loan, repayment dates, information on the consequences of non-repayment.
However, the interest rate on the car loan is not the only factor affecting the attractiveness of the offer. It is important to familiarize yourself with the security of liability required by the bank or information regarding vehicle insurance. Typically, banks do not require the customer to purchase car loan insurance. However, it is an individual decision of the bank that can affect the total cost of the loan. However, when it comes to security, it is usually an assignment recorded in the registration certificate along with the assignment of rights to possible compensation for the lending institution. Therefore, the borrower must take into account the need to provide an autocasco policy for the vehicle being credited throughout the entire term of the loan.
In addition, before signing the contract, you should check how the cash will be paid out, and what the terms of early repayment are, namely the amount of early repayment commission.
Where to get the best car loan?
Bank offers are subject to change and update, so when looking for a car loan, it is worth using tools such as car loan, calculator and car loan ranking. After entering the loan amount of interest and the repayment period, the offers of the institutions from which the best financial parameters can be selected will be compared. It should be remembered, however, that these are demonstrative offers that may change depending on the financial situation of the potential borrower, the make of the car or the year.
The indicated tools most often position products on the basis of APRC, i.e. the actual annual interest rate, which consists of the nominal interest rate on car loans and other liability costs. This means that the APRC is the total cost of the loan borne by the customer. It is worth remembering that the value of the nominal interest rate is limited by law and amounts to a maximum of four times the lombard rate.
Other sources of financing to buy a car
In addition to the car loan, the borrower may consider other forms of financing for the purchase of the car. Individuals can take advantage of a cash loan, which can finance both the purchase of a new and a used vehicle. However, the car loan calculatorclearly indicates a lower interest rate when choosing standard car loans. It is cheaper mainly due to the type of collateral, which is a registered pledge, appropriation for collateral and assignment from the AC policy. A cash loan bears a higher interest rate because it does not have as much collateral as a car loan. Unfortunately, the disadvantage of a car loan becomes its availability, moreover, it requires a lot of formalities and security, and in addition the lender also becomes a co-owner of the car.
Enterprises can apply for a car loan for companies, working capital loan, investment loan, leasing or rent. Car loan for a company, as in the case of offers for individuals, is offered by few banks. That is why entrepreneurs reach for alternative sources of financing. One of them is leasing, which combines a lease with a loan. In his case, the company obtains greater tax benefits than in the case of loans. The downside, however, is the need for own contribution, which can be an obstacle, in particular for new companies. When choosing financing for a car purchased for the company, it is also worth using tools such as rankings or a car loan for companies, a calculator that will allow comparison of car loans.
There are also loans on the market that are offered by the non-bank sector, i.e. a car loan without a loan, a car loan without certificates, an online car loan or a car loan for new companies. Thanks to them, people who do not have creditworthiness at the bank or want quick access to cash have a chance to finance the purchase of the vehicle.