Car financing : car purchase: these are the options for financing
A new car is needed. Often the purchase of the vehicle is already planned from long hand and therefore was saved on it. Depending on the purchase price, however, you can take out additional financing options or finance the car completely. Another way to get a new car or a used one is leasing. In general, it is important not to overstretch yourself with the purchase and only spend as much as you can afford. We have summarized here the options for financing a car and the best way to go about it.
Completely stress-free: cash payment
Those who put cash on the table when buying a car are often at an advantage. However, this is very figuratively speaking, because in principle it is a matter of paying for the vehicle in one fell swoop. It does not matter whether you pay cash or transfer the amount.
The advantage is that you own the car outright. You do not have to make any further payments in the future, except for the fixed costs around the car. Another advantage is the cash discount that can be negotiated with car dealers.
However, in order to own the car directly after payment, you have to save money. Depending on your income and the type of car, it may take several years to get a loan. However, if you are in need of a vehicle, you often don’t have the time to save up for the car you want.
The classic way: pay by installment loan
Most car buyers opt for an installment loan to finance a new or used vehicle. Such classic loans usually have a duration between one and eight years. The duration depends, of course, on the amount, the installments and the interest rates.
You have various options. Either you ask at your own bank, finance through the car dealer or use an online loan. With the latter, however, you should inform yourself carefully and compare the various offers with each other to really get the best price-performance ratio for the loan.
The advantage of these loans, compared to the house bank or financing through the car dealer, is that you can get the loan quickly and easily. For example, there is no schufa check and you can also get free advice by phone.
If you decide not to finance the car through the dealer or the car bank, you can also benefit from the cash discount. As a rule, you get the loan in one fell swoop and quickly paid off. So you can pay off the vehicle directly in one sum.
This is what you need to consider when taking out a loan
If you want to take out a loan, you should consider a few things in advance. First of all, you have to be of age, have your main residence in germany and have a german bank account. In addition, you should be able to prove that you have a sufficient credit rating and that you have a regular income.
To prove all this, certain documents are required:
- Current salary slips, account statements or tax assessment notices that provide information on financial circumstances.
- Information about the car, such as a copy of the purchase contract, mileage, and the make and type of the vehicle.
It is often more difficult to demonstrate sufficient creditworthiness, especially in the case of young adults who are, for example, in the middle of their education. A second borrower who has the required credit rating can help out here. Another way to improve one’s credit chances is to get a guarantee from one’s parents.
At the end of the credit period, the car then becomes the property of the buyer. Many banks also offer the option of increasing the installments or paying off the loan completely earlier.
Those who have already saved money for the car are also at an advantage here. Depending on the amount saved, the loan does not have to be as high, which at the same time has a positive effect on the interest. In general, it is advisable to buy a car, whether used or new, with a certain amount of initial capital.
Drive and return: leasing
Leasing is a financing method in which you drive the car for a certain period of time, but usually return it afterwards. In principle, it works like a rental contract.
In general, the monthly costs are lower than the repayment of a loan. However, after two or three years, you no longer have a car and the money you put into the leased car is gone. Some providers, on the other hand, offer to buy the car after leasing it.
three ways financing
About half of all buyers of new cars use three-way financing. In the first few years, this option is based on installments, which are usually much lower than with an installment loan. After the expiration of a deadline, there are three different options for the owner of the car.
One can take over the car completely for the residual value. Financing can continue in the form of a classic installment loan. In the third option, the car is simply returned to the owner. The discounts already paid are lost, as with leasing.