A car loan, also called an automotive loan, is a targeted cash loan to be used to buy a vehicle. The vehicle can be: a car, a quad, a motorcycle, a tractor, construction machinery, caravans, motorhomes, as well as a motor boat. With the help of a car loan you can buy a vehicle, both new and used, see how to approach this topic to gain as much as possible.
Where to apply for a loan?
Of course, you can get a car loan from a standard bank. What’s more, some car brands have their own banks that offer a car loan. This definitely makes buying a vehicle much easier, because we take care of all the formalities in one place, we have the opportunity to get a loan on very good conditions. In addition, by taking a loan in an authorized salon, we have the option of negotiating the price of the car.
What type of loan should you choose?
There are three types of car loan to choose from: standard loan, one-time loan and balloon loan. The first of these is a loan consisting of the monthly repayment of principal and interest installments. This loan is concluded for a convenient period for the borrower. The minimum duration of such a loan is half a year and the maximum is 10 years. There is no own payment requirement. A one-time loan is a form of promotional loan offered by car banks.
It is distinguished by a large own contribution of 50-60%. while the remaining part is borrowed by the borrower on the agreed date, for example after one year. A one-time loan is also called a 50/50 or 60/40 loan. This means that 50% of the loan is paid immediately and the remainder at a later date, similarly in the second example: 60% at the beginning of the loan period and 40% at the end. The third type of loan is a balloon loan, which has low installments covering most of the loan, for example 80%. The last installment repaid in full at the end of the loan period is 20% of the total amount.
Car loan insurance.
One of the bank’s most important requirements when granting a car loan is insurance for both the loan and the car. The main collateral used by banks is the assignment of an autocasco policy. If the vehicle is damaged, the insurer will be required to pay compensation to the bank’s account, not to the borrower.
Another security feature is a vehicle card deposit. In the event that the borrower fails to pay principal and interest installments, the bank has the right to take over the vehicle as its property. It often happens that the bank also requires the purchase of other insurance, including accident insurance. All these safeguards mean that the cost of buying a car is higher, but for the bank it is a minimization of the risk associated with non-payment of a loan.
What to remember when signing the contract?
By the borrower having to take out various types of insurance, the bank protects its interests. The borrower, however, must take care of his own good. Therefore, you should read the loan agreement carefully and pay special attention to the costs and provisions regarding the repayment of the loan. This is a prerequisite, thanks to which the borrower will avoid additional, unexpected costs that can be recorded in the proverbial “small print”.