Important Factors to Consider Before Taking a Car LoanUncategorized
Have you become more in the family or is it just time to buy a new car? In addition to which brand, model and color you should choose, you are probably also thinking about how to best finance your car purchase.
There are few people who can afford to step into the car dealership and buy their new car in cash. And if you belong to the crowd that does not have that opportunity, there are, fortunately, several other ways to go. We have listed some things that are important to consider when deciding how to finance the purchase of your new car. How you choose to go can have quite a significant impact on the total cost.
Review your budget and set a ceiling
The first thing you should do is figure out how much you can actually afford to put on the car each month. And do not forget that there must be room for all the surrounding costs such as inspection, fuel, tax and service. Then make it easier for yourself by setting a budget ceiling that is reasonable and accommodated in your budget – and do it before you start looking, otherwise it will be easy to get excited and attracted by all the nice cars on the market.
Cash deposit or not
As mentioned, there are different ways to finance the car purchase. A decisive factor is whether you have / want to pay a cash contribution or not. To take out a car loan from a car dealer or a bank requires a cash contribution of 20 percent of the total price of the car. The loan amount is then determined by the size of your cash deposit. If you want greater flexibility regarding loan amounts and want to take out a loan that covers the entire purchase price, it is instead a bank loan that is relevant to you.
Compare interest rates
Today, the interest rate on bank loans is usually as advantageous as the interest rate on a car loan. As always when it comes to loans, it is important to compare interest rates at different banks and on the different types of loans that are relevant. To avoid deteriorating creditworthiness due to too many credit reports when applying for multiple loans, it is a good idea to have a loan broker make the comparison for you. In this way, a comparison is made between several different banks on only one credit report. In the end, it also usually results in better conditions and many saved thousands of bills.
Think about the maturity
Depending on what your conditions look like, you can choose whether you want to repay the car for a longer or shorter period. Go back to your budget and be realistic about how much you can afford to pay each month. In general, shorter maturities mean higher monthly costs but lower total costs and longer maturities mean lower monthly costs but higher total costs. The maximum repayment period on a car loan is usually 5 years. A bank loan has a repayment period of up to 18 years and more flexibility to control the monthly cost.
Can you use the home as security for the car?
As mentioned, car loans and bank loans usually have equal interest rates. But in most cases, a loan on your home has a lower interest rate, so a good idea might be to check with your current bank if there is space and opportunity to increase the home loan further to buy a car or redeem your current car loan.
Fix financing first
It can be an advantage to have the financing ready before you go looking at cars. Car dealers often use low-interest car financing as a ploy to attract new customers, but if you have already fixed the financing, it gives you many times more room to bargain the car price – and it almost always pays off.
Worth remembering if you would like your car going forward is that in many cases a car loan will result in lower profits on a sale since the credit is then tied to the car and must be redeemed before it is transferred. A blank loan is not directly linked to the car, which means that you have the opportunity to get a larger sum in connection with sales.
Good luck with your car dealership! We at Tim Ruply are available to you if you have any questions or need help negotiating your interest rates.