Many are ready to buy on credit and pay off the debt with an overpayment for several years. Banks meet the wishes of customers and annually develop interesting offers for car loans. In the article, we talk about the pros and cons of car loans.
When to take a car loan
As soon as the bank issued the first car loan, the car ceased to be a luxury, but its cost did not become more comfortable. Therefore, if you are simply tired of an old car, do not rush to take out a loan. Weigh the pros and cons. Large spending will immediately affect your budget.
If you just like to sit behind the wheel, including while traveling, it is easier to rent a car. The car rental service offers a wide selection of cars for every taste and budget, a convenient and flexible payment system which is praised by locals as well. In addition, you do not need to think about repairs and similar issues as rental providers do everything for you, covering all the stuff to gift you the best possible rental experience.
When should you think about buying a car:
- You have frequent trips, especially out of town.
- You want to start a passenger transportation business (taxi, transfer).
- You save for a car for a long time, but you still don’t have the required amount.
- You have a big family.
- Your income has increased.
The car should be useful, not create new problems. If you are thinking about buying, then carefully analyze the situation. An expensive purchase can be replaced with an alternative (for example, a taxi or car-sharing). First of all, evaluate your financial capabilities.
Is it profitable to buy a car on credit through a bank?
Large banks give loans on different terms. A big plus is that no deposit is required. The car itself becomes the collateral, which the bank will take from the borrower if the debt is not repaid.
Banks issue car loans for both new and used vehicles. Some banks have special programs for used cars. A loan can be obtained from dealers when choosing a used car. Conditions will be more favorable than when buying a new one.
Buying through a salon
Car dealerships cooperate with several banks. Different conditions apply to different vehicles. If you have chosen a specific model, then it is better to contact the salon where it is sold and find out which bank issues money and under what conditions. Then collect the documents and sign the contract.
Banks require a down payment. Depending on the car loan program, it is 10-30%. The higher the down payment, the lower the interest rate.
After the conclusion of the contract, the car will become yours. Plus purchases from a dealer – discounts and promotions. For example, you will be given a set of winter tires.
How to get the best car loan
Don’t forget about car costs:
- monthly payment;
Add an amount for unforeseen expenses – a tow truck, a tire change, a sudden breakdown. If the amount exceeds 40% of your budget, then you should not take a car.
If you still decide to take a car loan, then compare and analyze information about banks in special aggregators. Study the current bank offers, the interest rate, the amount of the monthly payment, and overpayment.
There are government support programs for the auto industry, under which vehicles are sold at a discount.
Car loan insurance
Since the car is pledged to the bank, the owner acquires insurance against damage, theft, or theft. The insurance company is usually chosen by the bank.
Two insurances significantly reduce the risks of both the lender and the borrower. If something happens to the vehicle and the borrower stops depositing money, the bank will receive insurance compensation.
In this case, the borrower first buys insurance and only then can take a loan. In addition to these insurances, the borrower will be offered to take out life and health insurance.
It is added to the principal amount and interest is also charged on it. If the borrower refuses life and health insurance, then the down payment or interest may increase by 1-2 points.
Pros and cons of a car loan
- fast loan approval
- low interest;
- minimum initial payment;
- variety of programs and conditions;
- loan without guarantors;
- additional discounts, gifts, and bonuses from the dealer.
- the car remains pledged to the bank – it cannot be sold;
- almost always compulsory insurance;
- often a mandatory down payment;
- hidden services included in the total amount;
- obligatory service at the official dealer.
To apply for a loan to buy a car, it is usually enough to fill out a special form on the bank’s website. But before you decide to take this step, calculate the average monthly costs, taking into account maintenance costs and contingencies. It is better not to take out a loan if you are not sure that you will be able to repay it.