Car loan – how does it work?
When a worn-out car lives up to its days, or when the time comes to buy your first car, you don’t always have the resources to buy a used or new model. In this case, a car loan can help, which will allow you to quickly find yourself behind the wheel of your dream car. What is this type of financing? http://www.bizchinanfljerseycheap.com/bad-credit-auto-loan-dealerships-bad-credit-car-dealerships-borrow-today/ has details
Car loans, apart from housing loans and cash loans, are one of the most popular forms of financing provided by banking institutions. There are a number of interesting solutions on the market in which an initial contribution is required or not. The future car owner may opt for a fixed-purpose loan – in this case it will be the purchase of a motor vehicle – or a cash loan, in which the bank does not penetrate the way it is used. Customers, however, decide to install the car under dedicated auto-loans, because firstly they have lower interest rates, and secondly, thanks to them they can receive a much higher amount than in the case of cash credit forms.
What is a car loan?
Car loan is a type of loan granted by banks for a specific purpose, which is the purchase of a vehicle. However, this does not apply only to popular “passenger cars”, because the definition of “car” is broad in this case. The usual definition criterion is for the machine to have an engine and its movement function. For this reason, banks also grant car loans for trucks, motorbikes, motorboats, snowmobiles or water scooters. Agricultural machinery such as tractors also fall under this definition. Often, even the issue of the engine is not crucial, because a car loan can be used to buy e.g. a caravan.
What are the types of car loans?
Banks and car dealerships, in consultation with various types of financial institutions, outdo each other in proposing various options that allow you to buy a car in installments. Depending on the needs, preferences and wealth of the wallet, you can reach for cheaper family “four wheels” on credit or sit behind the wheel of a truly predatory display case. The proposed solutions are adapted to the financial possibilities and the initial contribution or final installment, which allow a significant reduction in the interest rate on the loan. For example, balloon loans, annual loans or 4 × 25% options are available. What is the difference between these types of options?
- Traditional car loan – it is not very different, for example, from a mortgage, because it is based on similar capital and interest installments and requires collateral, which is the car being credited. A classic car loan allows for a long-term repayment, which can be 5, 7 or even 10 years, which is definitely longer than when, for example, you choose a balloon loan. This type of financial service also allows for a new car loan and a used car loan, which is not possible under more specialized 50/50 options. This solution is also suitable for people who do not have any initial capital.
- A balloon loan – otherwise known as a balloon installment loan – is a popular solution in the so-called autobanks, i.e. banks that are owned by individual car concerns. However, this is not the rule, because Fine Bank, for example, offers a similar option. A balloon loan usually works on the basis of a three-stage payment for the car. First, the initial contribution is paid, then installments are paid for several years, and then the final or balloon payment is made, which is usually around 20% -30% of the value of the car. The balloon installment can be repaid once, broken into installments or the driver can leave the car in the salon, and its value will be the basis for the first payment for a new car. This solution should especially appeal to people who often change their vehicles.
- 50/50 or 4/25% loan – there are many loan options that divide the value of the car into individual parts. At the beginning you pay half or a quarter of the price of the car, and the next parts are paid in the following years. With a 50/50 arrangement, half the cost is paid immediately and the other half after a year. For example, the 3 x 33% mode consists in the fact that when signing the loan agreement you pay ⅓ of the deposit, after another one ⅓, to pay off the car in full after two installments. Obviously, subsequent annual parts can be split into convenient installments, which usually have no interest and you only have to take into account the commission or insurance.
What requirements must be met to get a car loan?
Banks are very meticulous about checking the person who is applying for a car loan. First, the credit history of the candidate is examined. When he had problems with paying his debts on time or is in one of the debtors’ databases, the possibility of receiving this type of financial assistance from the bank is practically zero. In this case, there is a cash loan for the car, which is easier to obtain, although with a bad loan history it will still not be easy. In addition, cash loans with no specific purpose are usually not very high, so the borrower will not be able to afford a new luxury car with the funds received. People who the bank refuses to grant even a cash loan can use the services of non-bank institutions. With the money obtained from a non-bank loan, you can buy a solid, used car.
It is also worth remembering that if you want to get a car loan, you must provide the bank with the appropriate package of documents, such as, for example, VIN or driving license. To secure their interests, banks often grant a car loan only with the obligation to take out AC insurance. Often, you can also meet the bank entering from the registration certificate, which is equivalent to the fact that he becomes a co-owner of the car. In case of problems with paying off the loan, the car becomes the property of the banking institution. Only with regular and correct repayment of all installments can the borrower become the owner of the vehicle.
Forms of car loan collateral
The most popular forms of car loan collateral are:
- registered pledge – if the loan is not repaid, the bank becomes the owner of the car being credited,
- assignment from the AC policy – this protection proves to be particularly helpful when a car is involved in an accident or is completely destroyed. In this case, the insurer repays the balance of the outstanding loan to the bank,
- transfer of ownership as security – this solution involves the bank’s entry in the car’s registration certificate mentioned above. With the repayment of the car, the borrower becomes its sole owner. Problems with loan repayment, however, are related to the fact that the bank takes over the car and sells it to receive the money due to it.
Loan for a new car and a used car
Most often, loans for a new car are granted with a down payment under the 50/50 or balloon system. However, this is not the main rule, because banks such as Paribas, Santander or mBank are able to grant car loans without a basic contribution. It can be really big money (up to 400 thousand zlotys) and the loan can be repaid for many years (8-10). Most often, when taking a loan for a new car, one should take into account the need to pay for insurance, which increases the price of the car. The advantage of this solution, however, is that all repairs during the insurance period are carried out for free at the car dealership.
In banks, you can also take a loan for a used car, but remember that it cannot be older than 8-12 years. Each banking institution has its own policy in this respect, so you should carefully check this issue before submitting your loan application.
Car loan and leasing
A car loan usually involves more formalities than leasing. Also, if you have a business, you can only deduct interest from the tax, not the entire amount, as is the case with leasing. The car loan allows you to be the owner of the car during the repayment, unless the bank is included in the registration certificate. When choosing a lease, you only really rent a vehicle and you don’t own it. The property is purchased with the purchase of the car.
Check all available car loan options well
To make a good decision related to choosing the right financing, it is worth using our loan installment calculator. This loan comparison tool will help you find the most attractive offers on the market and enjoy the car of your dreams, which is credited on the best possible terms.