When taking out a car loan and Buy Now Pay Later, good preparation helps to avoid mistakes and save money. These seven tips will help you find the right used car loan.
A new car should be here, but not a new car, that much is already clear. Also you may not have the means to pay the new car in cash or you want to preserve your reserves and rather take out a loan? The latter can be a good strategy, because a reserve for old-age provision should not be used for consumer goods such as cars. In addition, it is easier for many people to pay for their car gradually. So one thing is clear: the new used car is to be financed. We have a few tips on how to do this, explain the various forms of car financing and their advantages and disadvantages, and ultimately tell you how to get the right car loan.
Choosing the right car
What type of car are you looking for, and what should the new car cost? This is the first question, because your financing needs depend on it. Also consider how long you want to drive the car. If you want to sell the car again in four years, the loan should have been repaid by then. So you would aim for a credit period of 48 months. Also consider how long you want to pay off the loan. The basic rule: with a growing term, credit costs rise at the same interest rate.
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How much can you pay, how much do you still need? Do you want to finance without down payment or can you pay 5000 or 10.000 Euro? Calculate soberly how much you can afford yourself, at a stroke and every month. It is not bad to have an overview of your running costs: What income do you have, what are the expenses for rent, insurance, holidays, general living expenses? What is left comfortably? And don’t forget: despite currently low interest rates, every loan causes costs. You could pay the car in cash, but would have to touch your savings? Check how well your reserves are invested. If your savings are well invested, it may make sense to take out a cheap loan for a new car instead. For safety reasons alone.
Bank or dealer – who should finance?
You can finance your dream car through the dealer or through a bank. The dealer often advertises with low interest rates, but the decisive factor is the total cost of the loan. The effective interest rate is used as a benchmark. Also check the dealer’s offer. If you finance the car through a bank, the annual percentage rate of charge may be higher, but this is irrelevant if the total cost of the car plus credit costs falls. If you want to take out a bank loan, talk about an earmarked installment loan. There is a wealth of providers that you can identify via comparison portals. For several years now, car manufacturers have also been acting as lenders through their car banks. Here, too, it is worth taking a closer look.
Choose the type of financing you need
– Installment financing: The classic car loan in which the car is fully paid with the last installment. Advantage: You know the monthly charge from the beginning. There is also no high final payment for you. However, the monthly rate is high for short maturities, but the credit costs rise for long maturities. After paying off the loan, the car belongs to you. If you want to sell it, you bear the seller’s risk yourself, not the dealer. The costs are transparent and inexpensive, but the monthly burden can be quite high with a full financing.
– Private leasing: The customer acquires a right to use the car for a certain period, after which the car is returned to the dealer. The dealer then determines the residual value. The car remains in the possession of the dealer or leasing company. This form of financing, which was actually created for companies, is becoming increasingly popular with private individuals, although it offers them no tax advantage because the leasing instalments are not deductible. But at the end of the term, you simply return the car and don’t have to bother with the sale. Accordingly, leasing suggests carefree driving. However, the rates are usually higher than comparable credit rates. The user also bears the risk of repairs. Small defects such as paint scratches and parking bumps have a critical effect when the car is taken back, because the repair or excessive mileage is at the user’s expense. Also, you can hardly get out of a leasing contract before it expires, which could prove problematic in the event of a career change or family growth. In short, private leasing is not really a cheap and risk-free form of financing.