When purchasing a used car, the price is often so high that financing must be considered. There are different ways to finance a used car – leasing, classic credit and some special forms of credit. An objective and generally applicable definition of which form of financing is the cheapest can not be made in this way – in individual cases, the advantages and disadvantages weigh very differently. A careful personal analysis of all advantages and disadvantages should therefore always precede the decision for a certain type of financing.
Different financing options with different donors
Financing in this area is offered by traditional banks as well as by consumer banks and the many specialized leasing banks. In addition, of course, any cash loan from any lender can also be used to finance a motor vehicle. This also includes private loans – which have their advantages, but occasionally also have disadvantages, especially in the area of often insufficient legal certainty for both sides.
Leasing as a possible alternative to credit
Leasing of a used car is only possible if the vehicle in question is either a demonstration vehicle from a dealer, or alternatively if it has always been a leasing vehicle throughout the registration period. The only exception is that vehicles that are used as transport buses are always leasable. Leasing offers advantages throughout: On the one hand, the entire purchase price does not have to be financed, which makes the monthly charges less. You only pay for the use of the vehicle – which in turn has some disadvantages. With leasing, the buyer is only the user of the vehicle, which means that he can only have limited use of the vehicle.
Modifications, special use or loan of the vehicle are excluded in leasing contracts, regular service in recognized – and therefore usually expensive – specialist workshops is mandatory in many contracts. The lessee must treat the vehicle with particular care and comply with the agreed annual mileage, otherwise the estimated residual value cannot be achieved if the vehicle is returned after the end of the leasing period; the difference must then usually be paid by the lessee immediately upon return. The advantages of leasing are that the lessee is only the user of the vehicle – and therefore only pays for the use of the vehicle. At the same time, however, the biggest disadvantage arises here.
Loan financing as consumer credit or cash credit
Loan financing through consumer banks, mostly also specialized in vehicle financing, often have a very low interest rate level, and in many cases special offers can often also be clearly benefited from individual vehicle models. As a rule, the car is considered collateral for the loan at consumer banks. This is also the main difference to cash loans. In contrast to leasing, the full purchase price must be financed here, so the monthly burden on the buyer is definitely higher than with leasing. At the end of the term of the loan, however, the vehicle becomes the property of the buyer and can still be driven.
As a rule, comprehensive insurance is also required here to minimize the risk for the consumer bank. In the case of a cash loan, the vehicle is generally not used as security – this naturally places higher demands on the credit applicant’s creditworthiness. Depending on the creditworthiness of the borrower, the interest on cash loans is often significantly higher than that of consumer banks specializing in motor vehicle financing. For this, the vehicle becomes the property of the buyer immediately after purchase, who can also freely dispose of it. He also has the opportunity to sell the vehicle – which is not possible with the forms of financing mentioned so far. The buyer is free to opt for full or partial insurance.
Especially in the case of a less than optimal damage-free class, a cash credit and the waiver of fully comprehensive insurance can often achieve a significant cost advantage. However, in the event of a self-inflicted damage or in the event of force majeure, the vehicle owner must pay for the loan installments as well as for the repair or replacement of the vehicle.
Alternative credit options
For the sake of completeness, alternative forms of credit must also be mentioned here, which of course also offer the opportunity to finance a used vehicle as a cash loan. In the first place here is a private loan. The main disadvantages are the high level of legal uncertainty in private loan contracts, especially if the debtor should become insolvent, and the lack of actual collateral for the creditor.
A written fixation of the loan contract with a lawyer or notary can create a little more security here, but not remove all the disadvantages. Another form of private lending is Internet platforms, in which private individuals can register as borrowers and receive money from other private individuals who are looking for a highly lucrative investment. These platforms have been growing rapidly in recent years – on the one hand because of the investment opportunity for creditors and the comparatively good interest rate gains, and on the other hand because of the possibility for borrowers to obtain a loan outside of the classic banking system. However, the advantages and disadvantages of such platforms have to be considered in a differentiated manner and in each case weighed up against each other.
The decision for a specific form of financing is ultimately the responsibility of the buyer. It should always be based on a sufficient and comprehensive comparison of the advantages and disadvantages of the individual forms of financing.