How should you ideally finance your car?? Is buying cash, financing or leasing best?? This article will give you some guidance on whether you should buy a car with cash, finance it or lease it. In the following table you will find an overview of the advantages and disadvantages of financing, leasing or buying cash.
Cash buyers used to be able to get great benefits when buying a new vehicle. However, the price of new cars is rising more and more. Therefore, it becomes more difficult for many to raise the full amount. Even if this were possible, it is not necessarily the best solution.
In the past, loans were expensive and cars were cheaper
In the past, loans were expensive and cars were comparatively cheap. So you bought in cash. For this you have saved on the new car. Sometimes for years. The car was then collected from the dealer together with the family during a small celebration: money suitcase for car keys. Today, only a good third of new car buyers pay cash for their car. The majority of people lease or finance their car. But here are a few things to consider.
What you can learn here
Basic principles and parties involved
1. Paying for a car in cash
If you pay cash, the car is yours immediately after paying the purchase price. For you, this eliminates future installments and you can look to the future debt-free. From a financial point of view, however, the depreciation deposited directly in your assets. In addition, you are responsible for regular maintenance, as well as any repair costs of the car.
The seller hands over to the buyer in addition to the vehicle all accompanying documents such as vehicle registration, vehicle title, service booklet, keys. In return, the seller is paid the purchase price by the buyer. The procedure should be laid down in a purchase contract. For my own car purchase I used the adac purchase contract. From my point of view this document contains all necessary information. Here is a link. The following picture shows the schematic procedure for buying a car without financing.
#1: peter buys a car from susie without car financing
2. Financing
When financing your vehicle, the bank will lend you the money to pay the purchase price. The money must be paid back with the loan installments over the agreed period of time. For the bank to lend you the money, it needs collateral. Usually this is the car title you have to deposit at the bank. For the service of the credit additional costs arise to the pure purchase price: the interests. In addition, as with a cash purchase, you are the owner of the car and are responsible for repairs and maintenance. If you have a bad credit rating, you can even get a car loan without and despite negative schufa from providers such as smava* or bon-kredit*.
During the financing period, you are the borrower keeper of the vehicle. You are not the owner. Most banks require the car title as security, which means that the bank has the car at its disposal. The lender may sell the car if the loan installments are not settled. Once the loan has been repaid, the banks hand over the car title to the borrowers. This makes the borrower a legitimate owner of the vehicle.
This process is now too time-consuming for some online banks. Therefore, there are some banks that offer a car loan that allows the borrower to keep the car title. This gives the borrower additional flexibility.
#2: peter buys a car from susie with car financing
2.A financing via manufacturer’s bank
Financing via the manufacturer’s bank is convenient in the first place. Buy a new car and get financing on the spot without going to the bank. In addition, even with financing, you still have the chance to get discounts through the dealer. So there are often special offers for certain models.
However the installment loan from the car banks is not without its disadvantages: car dealerships usually require a down payment in the amount of at least 20 percent of the price. Other disadvantages are rigid terms and the high final installment of usually thousands of euros . The final installment must be saved alongside and in addition to the loan installments. Although it is also possible to finance the final installment later, the conditions for this are usually poor.
If the loan is terminated or revoked prematurely, the purchase agreement is also void. Because it concerns with the financing over the autobank a "associated business".
2.B financing through regular bank
When financing through a normal bank or savings bank, your newly purchased car often also serves as collateral. Some banks, however, do without this security.
An RSV or residual debt insurance that steps in when you can no longer pay the installments (e.g.B. Accident, occupational disability) is usually not very worthwhile in the case of a car loan. The risk is covered by other insurances such as occupational disability insurance or term life insurance (if available). In addition, RSV are usually too expensive, as finanztip has researched.
Regular banks usually charge the following for a car loan no down payment. Therefore comes also their name "car loan without down payment". However, the interest rates are usually somewhat more expensive. if you choose a longer term for the loan, the total cost of the loan will increase further.
2.C financing through car dealer
A rather rare alternative to cover the credit needs is a financing through a direct financing through the car dealer. This financing option is particularly suitable for people with a poor credit rating and negative schufa. So there are a few car dealerships which will finance your car even if you have negative schufa. You can find an overview in the article "which car dealer finances despite negative schufa"?".
Choose manufacturer’s bank or house bank?
Whether the manufacturer’s bank or the house bank is more favorable depends on the individual case. The best thing you can do is to get an offer from both and then compare them. This is a bit of work, but you can quickly save several hundred euros in interest.
but basically you can say: with a high down payment the credit rate will be lower and you have to pay back less interest. calculating the car loan with foresight is a must – even more so if it is your most expensive possession.
Is it worth it for you to buy the car in cash?? Do the test here
3. Leasing
In contrast to the other two variants, you are not the owner of the car when leasing. You only rent the car for the agreed period of time, the leasing period. Usually this is two to three years. The leasing rate, which is ultimately nothing other than the rental fee, is made up of the loss in value of the car and the lessor’s profit. Since lessors usually finance themselves through bank loans, the profit also depends on the interest rate level. Here, too, the vehicle title usually remains with the dealership or the dealer. To the lessor. After the leasing period is over, you can buy the car for its residual value or lease a new one. There are different contract constellations for replacing the car. If you have a bad credit rating you will find here 6 providers who offer car leasing without and despite negative schufa.
#3: peter leases a new car
The advantages and disadvantages of buying a car in cash
The cash purchase is the cheapest way to buy a car. Because what is the lessor’s profit with leasing, is the interest with a loan. Only with cash purchases do no additional costs to. Therefore, a cash purchase means serenity in the future: finally, the car is paid for and a no future financial burden. In addition, buying in cash makes it easier to save money at the dealership. Of course, when choosing a car you are limited to your own financial possibilities. High-priced cars are only affordable after sufficient savings have been made. If the car is used for business purposes, it can be written off using the afa tables. With leasing there are greater possibilities of tax depreciation
