Car Loan, Car Finance or Leasing? Differences and actual costsOn January 3, 2020 by admin
Increased competition in the consumer credit market has been reflected in the proliferation of different types of car loans and car financing options. By comparing different financing options, you can find out what is the best way for you to finance a car purchase – car loan, car finance or leasing?
Buying a car becomes a topical issue for almost all people at some point in their lives. New work, family raising or moving to a new place are common reasons that create a need for a car. Cars are still bought in cash, but different installation arrangements have also become more common. Comparing different car finance services is a hassle-free way to find the most suitable and affordable financing option.
Take a look at the comprehensive car owner’s checklist: what you need to remember about insurance, roadside inspection and taxation.
Car loan from the bank
Applying for a car loan at a bank is a common way to finance a car purchase. A car loan is usually taken out of the bank as collateral. A bank can also take out a unsecured car loan, but it is usually cheaper than a secured loan because banks want to minimize the risk of credit loss when granting a loan. Larger car loans usually require a security or loan guarantee. The loan itself can also be secured by the car itself.
A car loan taken from a bank differs from a car finance company financing in which the car is usually transferred to the borrower as soon as the loan papers are signed. In the case of car financing, ownership of the car is not transferred from one party to the other until the last installment has been paid.
Banks have a relatively stable market position and their business is not dependent on loan interest rates and handling fees as financial companies. As a result, interest rates, handling fees and interest margins on car loans taken from a bank are, on average, more moderate than those of financial services companies. However, competition in the consumer credit market has intensified and the bank’s position as the provider of the most favorable loans has by no means been stoned. For this reason, it is always worthwhile to compete for loans.
A car loan can be obtained from a bank if the borrower has a clear Payment History and ability to repay the loan. You can apply for a car loan from your own bank or other banks. However, banks often require that the borrower also have a pay account opened with the lending bank.
Strengths and weaknesses of a car loan:
+ Moderate interest and total costs
– It may take some time to get the loan on your account
– The car loses value during the loan period
Car financing from a private financing company
Car Loan and Car Finance are very similar installment arrangements. Car financing is mainly provided by car dealerships and financing companies. Many car dealerships may have cooperation agreements with different finance companies.
Private financial services companies operate more straightforwardly than banks, providing faster financing. A private financing company is a good alternative to finance a car if the need for a car is acute. However, you should be sure of your own repayment ability, although the need for a car may surprise you.
The average cost of a loan from a finance company is higher than a loan from a bank, largely due to higher interest rates. However, competition in the credit market is strong and the financing company may offer well outperform the bank’s car loan.
A common weakness in car loan and financing is the high total cost of the loan, which, due to interest and loan servicing costs, is higher than the current purchase price of the car. Nor does the borrower feel that the risk of a car being depreciated remains with the buyer while the car is paid on a monthly basis. In addition, the final installment of car finance repayments is usually higher than other installments, which can cause headaches in the final stages of repayment.
Strengths and weaknesses of car financing:
+ The loan amount is quickly credited to your account
– High heels
– The car value during the loan period
– Big last installment
Leasing has long been a preferred car financing method for companies. Recently, more and more individuals have purchased a car through leasing arrangements.
The lease payment arrangement leases the car on a long-term basis and pays a fixed monthly price for the use of the car, which is not affected by fluctuations in general interest rates. The leasing model is particularly well suited for people who need a car for a moment and who know roughly when the need for a car stops and how much they need to drive.
The advantages of the leasing model are the predictable costs and the good condition of the leasing cars. In the leasing model, the driver knows the cost in advance, as the monthly leasing fee usually includes periodic maintenance and inspections, summer and winter tire storage, and repair of technical defects caused by normal wear and tear. In addition, the ‘lessee’ does not bear any risk of the car being depreciated. Leasing contracts generally cover 2-5 years and may include a clause limiting the number of kilometers traveled.
One of the weaknesses of the leasing model is the high long-term costs. The car is paid a relatively high monthly price until the end of the contract, without ownership of the car, unless the contract includes a redemption option. At the end of the contract period, the car will be returned to the dealer and the effortless movement in the no-nonsense driving game is just a rare memory of the past. Also, it is good to remember that leasing is a fixed-term lease. Termination of a contract during the contract period may entail considerable additional costs.
Strengths and weaknesses of the leasing model
+ predictable costs
+ cars in good condition
– high long-term costs
– the car does not acquire ownership without a redemption option
– Mileage Limits
– penalties in the event of termination
It is definitely a good idea to compete for a car loan and various consumer loans instead of accepting the first upcoming loan offer. Grendel’s Comparison Tool collects from various banks and finance company services a summary of offers that meet the needs of the borrower. Bidding can save the borrower up to thousands of euros. Bidding on loans costs nothing and bidding requires no commitment to take out a loan.
Easily competes for your car loan here.