The most important thing about car loan in brief
- With a car loan, you have the choice between the manufacturer-dependent car bank or an independent direct bank.
- With the car loan from the direct banks, you can literally drive cheaper – you can save up to $ 1,000!
Every car loan is an installment loan!
A car loan is a special form of installment loan. That means:
- There is a fixed interest rate
- a fixed rate
- and a fixed term.
- The loan amount is repaid monthly.
But how does a car loan differ from an installment loan? The difference is that, in contrast to the installment loan, the car loan is earmarked. The car loan is therefore only intended for the purchase of a private car. It is different with the installment loan. Here you get a sum of X and can use it to buy what you want. A cheap car loan usually has better conditions than a good installment loan.
Difference between dealer credit and cheap car loans
Comparing your two alternatives for buying a car – dealer credit and car loan from a bank – shows that the car loan emerges as the clear winner. There are relevant advantages over dealer credit.
Advantages of car loans with the direct bank:
- Use discounts: You can purchase a car loan from the bank for both new and used car purchases. This brings you advantages when buying from a dealer. Because here you appear as a cash payer – and this means discounts and discounts.
- Better than leasing contracts: car loans at low interest rates usually also have more advantages than leasing contracts. They are often not only opaque to consumers – they are also calculated with expensive interest.
- Special repayments possible: Another advantage of car loans is that they can be partially or fully repaid at any time.
Disadvantage of car loans with the direct bank:
- More effort: A major disadvantage of this route is the additional effort. Because you have to carry out the entire processing of the lending at the bank and then the purchase from the dealer. When financing through the dealer-dependent bank, everything would come from a single source.
- Advantages of dealer credit:
- Low interest rates: As a rule, you receive low interest rates on current models.
- Services from a single source: You only communicate with one position and do not have to make double appointments to buy a car.
Disadvantages of dealer credit:
- Rigid conditions: While you are often offered low interest rates on the current models when using a dealer-dependent bank, the purchase prices are often high and there are rigid guidelines.
- Playful discount options: Unlike when buying with a car loan from a direct bank, you cannot use any discount options.
- Loan term: It is not that easy to shorten the loan term.
- Insurance is required: When financing from car banks, they often require that you take out fully comprehensive insurance for the vehicle, which is associated with additional costs. With car loans via the direct bank, you can choose freely.
Cheap car loans – that can be saved compared to dealer credit
The previous comparison made it clear to you what advantages a cheap car loan has over a dealer loan. Suppose you want to buy a Smart for $ 10,485. Then the following comparison results:
This comparison shows that the supposedly low interest rates at the manufacturer-dependent bank are enticing. Ultimately, the cheaper option is car loan from a direct bank.
Car loan comparison: is it worth it?
But hello! As the saying goes: Hard work has its price – and cheap car loans. Because if you take the trouble to compare different tariffs, you can save a few hundred USD in borrowing costs. This comparison shows this under the following conditions: You are looking for a loan for 12,000 USD with a term of 48 months.
A comparison of the loan offers shows that the comparison enables significant savings because you can save a lot of interest costs over the term. And all the more so with higher loan amounts and longer loan terms. It’s worth comparing!
You should pay attention to this when comparing car loans
If you want to get an overview with our comparison calculator, you must first of all know about the loan amount and the term. You have to enter these two parameters. The bank interest rate is then based on these values.
There are basically two different types of offers in comparison:
- Fixed price deals
- Offers dependent on creditworthiness
The majority of the banks in our comparison award auto loans and their interest based on the creditworthiness of the customer. To put it simply: Anyone who earns well, has a secure job and has always paid back loans in the past poses a low credit risk for the bank. It is cheaper to get car finance than other customers.
However, a term of no more than five or six years is recommended for a car loan. If the loan runs longer, the used one may already be worn out and you still have to pay off for it. Be prepared to experiment within the five-year period. Because you get a good feeling for the rate and interest.
In addition, you should consider the various criteria that providers set for the granting of car loans. For example:
- an open-ended employment contract
- proof of creditworthiness in the form of the last three salary statements
- a list of debts
- the vehicle letter that you have to present to the bank for the car loan, which is cheaper than a normal installment loan
What to do if the comparison does not produce the desired result?
The best car loan comparison will of course not help you if you are rejected at the end of the application process. But you shouldn’t give up that easily. Try the following measures to get the money for your dream car:
- Reduce the amount of credit for your car at this bank
- Take your partner – if not a parent, perhaps – on board as a second borrower. The second person represents additional security for the bank.
- Extend the term to a maximum of five or six years. This will lower the monthly installment and may be a better match for your monthly income.
- Since your car loan request is not only sent to the bank you have chosen, but to several, you may have to accept a slightly higher interest rate if your credit rating or credit rating is poor.
Comparison successful – can I dissolve existing financing?
If the loan comparison was successful, you may be asking yourself whether you can dissolve other existing loans early and (hopefully) whether that would also be possible with this loan.
There has been a clear answer to this question since mid-2010: Yes, you can always cancel installment and auto loans. However, there is a catch: the bank or savings bank may charge a prepayment penalty for this. The amount is limited to one percent of the loan amount. With remaining terms of less than one year, on the other hand, it is only 0.5 percent of the loan amount.
This is why it is important: If you decide to take out an auto loan, find out in advance whether there are any costs for early termination of the loan. If you take out car financing, you should always choose a bank that avoids such fees from the outset and lets customers out of the contract at any time without these costs if they want to repay the money early. Comparing conditions is the best way to find a suitable auto loan provider. You can find this important information by clicking on the word “Product details” in column five of our comparison.
Car loan comparison: is my Credit bureau score affected?
No. Because this is just a condition request that Credit bureau is neutral. That means: one or more credit inquiries to ask for interest etc. does not affect your creditworthiness. This information is only received by Credit bureau when a contract has been concluded. And if you always repay this loan on time, it will even improve your Credit bureau score, i.e. your creditworthiness.
Without a vehicle registration certificate when sold in a dilemma
Problems can arise if you want to sell the car within the term of the car loan. Because a car is usually sold step by step. The buyer pays when you hand over the key and the papers, i.e. both registration certificates I and II. However, if the approval certificate II is held by the bank, this can really put you in a bind: Because without an approval certificate II, you will usually not get any money from the buyer. Without money, however, you cannot redeem the loan to obtain registration certificate II. Some banks – such as ING – grant your car loan without requesting the vehicle registration document. This can be an advantage in the case of an early sale.
Car Loan: Why Ballooning or Three-Way Funding Isn’t a Good Idea!
There is also another fairly common financing option for car loans: balloon financing. This name is synonymous with final installment financing. These credit models are very popular with consumers. This is how the purchase prices can be converted into smaller credit installments. Because here the monthly repayment rates are pushed by a larger final rate. A deposit is added to the three-way financing.
We will show you this using our smart example. With three-way financing, the monthly installments would only be $ 100.64. But even if this loan option initially feels cheaper – balloon financing is usually not a bargain. Because based on the term of 36 months with this variant of our Smart you are already at $ 3,623.04. Added to this is the down payment (25%) of $ 2,621.25 and not to forget the final installment of $ 4,613.40. The total cost here is $ 10,857.69. If you preferred this option to the direct bank car loan, you would have an additional $ 1,000. The numbers speak for themselves.
Step-by-step instructions for your car loan
One thing is clear so far: Car financing through direct banks brings you the greatest advantages when buying a car and is preferable to dealer-dependent credit and balloon financing. So don’t be blinded by supposedly low interest rates or monthly installments and take the trip to the bank. The hard work pays off. This step-by-step guide will help you to buy your car perfectly.
Step 1: set the dream car
The first step is about the most important preliminary considerations for your car purchase:
What kind of car do you want to buy? New cars, an electric car with funding or do you decide to buy a used car?
- Which brand and model should it be?
- How much is the purchase price?
- How long do you want to keep the car? (For the duration – a maximum of five years is recommended)
Step 2: Know your own financial opportunities
When buying a car, it is not only important to discuss how expensive the car is, but also how it should be financed. To do this, get an overview of your finances:
- How much free capital do you have?
- How much money can you spend on a monthly repayment?
- How much of the purchase amount has to be financed through a loan?
Tip: It is important that you do not overestimate yourself here every month and that you do not jeopardize your liquidity by the repayment rates every month.
Step 3: determine lender
The third step is to choose a lender. So you want dealer-dependent financing or a car loan through the direct bank. This text should have provided you with some decision-making aids.
Step 4: Which type of credit can you use?
This step is of course strongly dependent on your decision in the third step. Because depending on how you decided, the question of the type of financing remains. You can arrange the financing of your car in different ways:
- Via the classic car loan in the form of installment financing with the direct bank or the dealer-dependent bank
- Alternatively, there is private leasing, where you as a customer only acquire a right to use the car.
- The balloon loan is available, which is a mixture of installment loan and leasing, because this variant combines low installment payments with a large final payment in the end
- And last but not least, there is the three-way loan, which is a form of financing similar to the balloon loan, except that a down payment is added.
Step 5: house bank or online?
In the last step, the question still arises whether you would prefer to take out your loan with your house bank or online. Now that you know all the important parameters, we recommend that you use our car loan comparison and get the best out of yourself!
Questions & answers about car loans What is the advantage of a car loan over a conventional installment loan?
Because this form of installment loan is tied to the purpose of buying a car, the banks often offer the loan amount on better terms.
What should I pay attention to when comparing the loan options?
You should have a clear picture of what loan costs will be for you at the end of the term. You only get a good comparison value through this overall picture. Just comparing the APR or the monthly repayment rates does not give you a far-reaching picture.
What is the recommended term for my car loan?
Loans of up to five years are recommended for the car loan. The background: due to the short time, the risk of repairs and expensive maintenance is lower.
Would it be an advantage if I opt for the online option for my loan application?
Maybe yes. Because online you can get a comprehensive picture of the current conditions. For example via the Biallo car loan calculator. This means that you are not tied to an offer – for example your house bank – but can choose the cheapest car loan.
I want to buy a used car – what should I watch out for?
Regardless of whether you are financing a new car or buying a used car, there are usually no major differences to be expected. Because banks can also take used cars as security. You only need to provide more information when submitting your application. And with very old cars with high mileage, the bank could get in the way. For cars that are over ten years old and have more than 250,000 kilometers on the rear.