Most of us dream of four wheels. We do not always have the money put aside for this purpose and then the question arises – what method of financing this investment will be best for us?
What is a car loan?
Today, the banking market offers a number of solutions that will allow us to enjoy having your dream car. A classic solution is a car loan . It is a special-purpose loan, i.e. you can buy a specific, previously selected car – new or used – for the funds obtained from such a commitment. A car loan is one of the cheapest solutions compared to other loans, but the car must be selected when applying for financing. It should also be remembered that the above car will be a collateral for the loan. Most often they are registered pledge, appropriation for security and assignment from the AC policy . Bank procedures for car loans are demanding, thanks to which its price is attractive. For example, one of the requirements for a car loan is the age of the car. Often it cannot exceed 10 or 15 years. What to do if we want to buy an older car or we do not have a car selected?
When buying a car, I have to think about my expectations regarding the method of financing it. When choosing a car loan, I must reckon with the fact that the bank will enter the registration certificate. If they decide on a revolving loan, I should remember that paying off the interest installment looks tempting, but in the long run it may turn out that after years I still haven’t paid my debt to the bank. A cash loan will be more expensive than a car loan – but the bank will not co-own the car
Cash or revolving loan
No worries. An alternative option to finance the cost of buying a car relative to a car loan may be a cash or revolving loan. Their characteristic feature is that they do not need to disclose the purpose of lending to the bank, unlike car loans, which unfortunately require it. Therefore, if we want to secure the investment in our own vehicle first and then look for it later, we should choose a cash or revolving loan. Therefore, if we do not have to disclose the purpose of lending, we can even buy a car called a classic whose production was completed 40 years ago. Many people wanting to buy a car are asking themselves what to choose: car loan or cash? Both can be used to buy a new or used car.
Car loan. Is this the cheapest solution?
In financial terms, a cheap car loan is more profitable, which means that the customer incurs lower costs than with a cash loan . This is due to the fact that banks, when granting a car loan, have a number of different collateral in the event of default. A cash loan has an interest rate higher because it does not have as much collateral as a car loan, and therefore it must be simply more expensive.
Will I buy an old car with a car loan?
With a car loan, a problem may arise, e.g. when buying an old car over 10 or 15 years old. Banks have guidelines regarding the age of the car, it may happen that the dream car will be available only in cash or a revolving loan. When buying a used vehicle with a car loan, you can expect a higher interest rate on the liability than when crediting a new car.
A revolving loan to buy a car?
Exactly so, another option for financing the purchase of a car may be a revolving loan. A revolving loan is directly linked to an individual personal account at the bank, the so-called ROR. The limit for such a loan usually depends on the amount of inflow to the account. In most cases, this limit is available automatically, you do not need to submit any documents to the bank. This is a huge plus if collecting income documentation is a challenge for us at the moment. The limit can be activated in a few minutes, sometimes directly from the online banking level. This option is often used when making urgent decisions – buying a car is often such a decision. In the same way as with a cash loan, when deciding on a revolving loan, we don’t have to tell the bank what we will use the money for, for which the bank does not require it.
The basic and most important advantage of this loan is its revolving power and price – which, with some discipline, allows it to be used relatively cheaply, almost indefinitely. The account limit gives you the option of permanent access to cash. However, this requires a great deal of vigilance, reliability and regularity. If we miss the moment when the loan repayment deadline expires, the bank will start charging us interest for the outstanding loan, which is much more (about 30%) than a standard dozen or so percent for a revolving loan. Such credit requires greater consistency and discipline if we want to pay it back in the period we plan. The opposite is the case with cash and car loans, which are installment loans. The schedule clearly shows the closing and repayment date of the loan.
In summary, every future car owner will find the perfect solution for himself. The banking market gives a number of possibilities that are worth knowing to be able to choose the best banking product in the future . At the very end, when choosing, the buyer’s individual preferences regarding the construction of the product, repayment schedule and possible monthly charges count.