The car loan – This is how vehicle financing works

There are many different ways to take out a motor vehicle loan. The most obvious option for many is to take out the vehicle loan through your own bank. Another variant is to finance the motor vehicle using an online loan. Ultimately, there is also the opportunity to use financing offers from the car dealer’s house bank.

All variants can have advantages but also have disadvantages and it is therefore necessary to choose the right loan for your own individual needs. The decision in favor of the house bank has the advantage that the applicant is already known here, so the process of lending is therefore straightforward. Both the income and the running costs can be quickly compared using the account data. And there is already transparency in terms of creditworthiness with regard to Credit Bureau.

Lengthy audit procedures like those of another bank are therefore not necessary. After a brief examination of the facts, the applicant can usually get the motor vehicle loan from the house bank relatively quickly. It is also pleasant that the conditions at the house bank can be very favorable and that the deposit of the vehicle documents is not necessary due to other collateral such as financial investments or the like.

An alternative can be an online loan. Many banks today offer motor vehicle loans as online financial institutions, and the conditions for the loans are often attractively cheap. The disadvantage here is that the applicant has to take care of all the formalities involved in processing the loan. From the application to the submission of all the necessary papers, the applicant is responsible for this type of loan. Ultimately, there is also the possibility to take advantage of loan offers from the car dealer’s house bank when it comes to vehicle financing.

The pros and cons of car dealership loan offers

The pros and cons of car dealership loan offers

All car dealerships today also offer the possibility of processing the car purchase through the dealership’s partner bank. In the case of car leasing, the partner bank of the car dealership is the institute that is responsible for the processing anyway. The dealership’s partner bank can also be used for car financing for a new or used car.

The first advantage of this type of financing is convenience. The car purchase and the car financing take place under one roof and without further paths or time expenditure. In addition, many car banks now also offer the delayed repayment of the car loan. In this case, the borrower can, for example, wait three months from the conclusion of the contract before paying the first installment for the car financing.

Another advantage is that many car banks also offer 0 percent financing, which may be particularly inexpensive. Financing via the house bank can prove disadvantageous in that discounts for cash payment at the car dealer may be consumed.

Discounts when buying a car

Discounts when buying a car

Every car dealer also offers discounts for vehicle purchases with immediate cash payment. If the car is financed through the car bank, this discount is often not applicable. Therefore, one should in any case compare the terms of various motor vehicle loans, including possible discounts. You should also get detailed information about the processing times for this loan, so that you do not have longer processing times than at the house bank or another established institute.

0 percent financing with more precise lighting can also prove problematic. This special and particularly inexpensive type of financing is often only offered for certain types of cars in order to boost sales. So it may be that the 0 percent financing is not available for your own desired vehicle type.

The most important argument when deciding on financing through the car dealer or external financing is the question of the discount. It is important to know whether a discount is granted within a dealership financing. If the discounts negotiated for cash payment absorb the additional costs that arise for bank financing or financing from a direct bank, this type of financing is the better option.

It is often also possible to achieve more variable agreements with regard to terms and repayment as a whole through financing via the house bank or the direct bank than is the case with the auto bank. The interest in financing through the house bank can be great for the car dealer simply because there is a stronger bond for the customer.

One should also note that in addition to fixed conditions for financing through the car bank and selective 0 percent financing, a minimum down payment may also have to be made.

Requirements for financing the vehicle

Requirements for financing the vehicle

In order to be able to finance a motor vehicle, proof of creditworthiness in the form of income is required. This evidence can be provided by submitting an employment contract and proof of income. As a rule, employment with the current employer for at least six months is required and the applicant may no longer be in the trial period. Furthermore, a Credit Bureau query must be approved by the applicant.

For motor vehicle loans, it is usually still necessary to take out comprehensive insurance. The lending bank thus ensures that the car loan is repaid even if the vehicle is damaged. Many banks also keep the Kfz letter for the term of the loan, which also corresponds to the securing of the loan and with which an uncomplicated sale of the vehicle is possible if the borrower is in arrears with the installment payments.

When it comes to the cost of vehicle credit, the lower the credit interest or the Credit Bureau information provided by the applicant, the higher the loan interest. Customers who generally would not need a loan and who guarantee absolutely perfect collateral for the loan receive the best conditions for motor vehicle credit. Under certain circumstances, the creditworthiness can be improved if the motor vehicle loan is carried out by two people as borrowers, so that two contracting parties are also secured.

The general comparison criteria between the individual motor vehicle loans

The general comparison criteria between the individual motor vehicle loans

In order for an objective comparison of the individual providers of vehicle loans to be made, it is important to make comprehensive comparisons of the individual providers of vehicle loans. Credit calculators on the Internet can provide clues for comparing different providers. In the online comparison, the most important criteria of the individual providers are compared, i.e. interest rates with the same term and rate and, in addition, special conditions such as free repayment of the loan or the possibility of suspending installments.

The comparison between the nominal interest rate and the effective interest rate is important. The loan amount is lent at a fixed interest rate and this results in the monthly installment, which has to be paid in a fixed monthly contract for the repayment of the loan.

In addition, there is the effective interest rate. This includes all costs incurred for borrowing, including fees and additional costs for the loan, which are ultimately added to the nominal interest rate. If, for a loan, there are provisions, transaction fees or account management fees and similar additional costs, these are recorded in one sum and apportioned to the term of the loan amount using an interest rate. The effective interest rate is therefore always higher than the nominal interest rate.

An objective comparison of motor vehicle loans can only be made if both the nominal interest rate and the effective interest rate are used for the comparison. The law stipulates that the effective interest rate must be specified by the provider. However, many providers use advertising in such a way that the nominal interest rate is shown as the most important item, and the effective interest rate can only be seen in footnotes or in the small print.

It is therefore particularly important for loan seekers to read the offers carefully and compare the two interest rates with each other, instead of using the first and apparently cheapest offer. Thus, an apparently more expensive nominal interest rate can ultimately prove to be much cheaper if it brings along low additional costs than a supposedly cheaper loan that entails high additional costs.