You are not sure how best to finance your new car? We give you an overview of the advantages and disadvantages of a loan from your bank or financing through a car dealer.
Car loan from the car bank or the house bank?
Did you know that around 40 percent of all loans taken out by consumers are used to finance a new car?? Due to the low interest rates that have prevailed for years, this trend has even increased, making special car loans one of the most sought-after forms of credit. In this context, you too may have been faced with the decision of whether to take out a car loan with your bank or opt for dealer financing, i.e. a car loan from a car bank. We would like to provide you with more information on this topic so that you can then make the best possible decision as to whether a car loan from a car bank or a loan from your house bank is the better alternative for you.
What financing options are available when buying a car??
The financing market today is extremely flexible and broadly diversified. This is exemplified by the area of car financing. So there are not only on the part of the classical banks, but for example also by automobile clubs, autobanks and dealers different possibilities, how you can finance the purchase of your next vehicle. In practice, the following financing alternatives are frequently offered on the market:
- Classic installment loan from the house bank
- Car loan as an installment loan option
- Installment agreement through the dealer (car loan from the car bank)
- Three-way financing
- car leasing
As you can see from the short list, the numerous large car dealers in germany alone often offer three financing models, namely the classic car loan as an installment agreement, three-way financing (balloon financing), and car leasing, which, however, is generally only recommended for buyers who use their vehicle commercially. Most consumers, however, are faced with the question of whether they should opt for the car loan from the house bank or the car loan from the car bank.
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What speaks for the car loan of the house bank?
When we talk about a car loan from your bank, we are of course not only referring to the credit institution you personally refer to as your bank. Instead, the term "house bank" is used for all traditional credit institutions, such as banks, savings banks, Raiffeisen banks and especially direct banks, which offer installment loans and car loans on their website. One of the advantages of a car loan from your bank is that the loan is made available quickly and without complications. This is particularly true of so-called instant loans, which are mostly granted by direct banks. In times of low interest rates, these installment or car loans can often be characterized by favorable conditions, although they often do not quite match the even more favorable interest rates of dealer financing. Other advantages include the fact that the car loan from the house bank can often be repaid early free of charge. Interim unscheduled repayments are usually not a problem either. For many consumers, it is also important to be able to finance a car independently of the car dealer.
So far, the following advantages have made the installment loan or the. Car loan of the house bank can distinguish:
- Fast and flexible financing
- Favorable interest rate conditions
- Independence of the financing from the car dealer
- Unscheduled repayments usually possible free of charge
We have not yet mentioned what is probably the greatest advantage of the car loan that you can take out with a traditional bank. In concrete terms, this consists in the fact that, due to the independence of the financing from the car dealer, you can take advantage of a cash discount when buying the car. This cash discount is often up to 20 percent and thus reduces the purchase price of the desired vehicle on average between 10 and 20 percent. This in turn means that the amount of the loan you need to finance is also reduced by 10 to 20 percent. In this way, the car loan of the house bankofter manages, despite slightly higher interest rates compared to the dealer financing in the sum to be cheaper. In fact, if you choose the car loan from the car bank, you will no longer be able to pay the dealer in cash and you will have to finance a larger amount than would be the case if you had taken advantage of the cash discount on the loan from the bank.
The following example will show you how the cash discount works in practice and how it can lead to lower total costs for a loan from the house bank than for a car loan from the car bank:
Financing through the car loan of the house bank
purchase price: 20.000 euro
cash discount: 4.000 euro
credit amount: 16.000 euro
interest rate: 3.6% p.A.
Term of the car loan: 5 years
annual interest cost: 576 euro
total cost: 2.880 euro
Financing via a car loan from the car bank
purchase price: 20.000 euro
cash discount: –
loan amount: 20.000 euro
interest rate: 2.9%
term: 5 years
annual interest costs: 580 euro
total cost: 2.900 euro
as you can clearly see from this example, the car loan from the house bank is slightly cheaper in total due to the cash discount that can be used, although the car bank can offer a 0.7 percent better interest rate. In this respect, it is advisable to compare offers in this way if you are wavering between financing via the dealer and your house bank.
what are the advantages of the autobank car loan??
In the previous example, the car loan from the house bank was slightly more favorable in total due to the cash rebate at the dealer that the customer can use. Of course, this is by no means always the case, because the interest rate conditions at the car dealer and the associated car bank are often so favorable that, even taking into account the cash discount, the total costs are lower than for a loan from the house bank. This fact is also one of the biggest advantages of the autobank car loan, namely the extremely low average interest rates. some car banks and thus car dealers even offer zero-percent financing in campaigns every now and then, which of course can hardly be beaten by offers of classic banks.
Many car buyers see a further advantage in the fact that they can obtain financing from a single source can use. This means that the car loan is applied for directly at the car dealer, in connection with the other formalities involved in buying a car. The customer does not have to look for financing separately and, for example, first search for suitable loans at direct banks or at his house bank. Furthermore, car buyers often benefit from a flexible financing offer when financing through a car bank, which can include not only the classic car loan in the form of an installment agreement, but also newer variants such as three-way financing.
We would like to briefly summarize the advantages of the car loan from the car bank in the following:
- Often extremely favorable credit conditions, sometimes zero percent financing
- Financing from a single source
- a wide range of financing offers, for example three-way financing
your decision: car loan from the car bank or the house bank?
If, in connection with a car purchase, you have to decide whether financing through the dealer or the house bank is preferable, you should always compare the available offers with each other. By far the majority of consumers opt for the more favorable financing, while other aspects, such as the possibility of special repayments or financing from a single source, often play a subordinate role. So when you compare the car loan from the car bank and the house bank in terms of cost, be sure to include the possible cash rebate at the dealership.
This discount reduces the loan amount so that you can compare the car loan from the car bank for the full financing amount, but often with lower interest costs, with the car loan from the house bank. The credit from the house bank can be reduced by the cash discount and usually includes somewhat higher interest costs. However, these can possibly be "amortized" due to the cash discount and the associated lower loan amount (thus recovering the costs) or even make the car loan from the house bank more favorable than the dealer financing. It is therefore always an individual calculation and decision which financing option represents the optimal solution for you personally.
bills in front of car: fantasista | dreamstime stock photos
hypovereinsbank pictures: hypovereinsbank.De
piggy bank: tatjana krstic | dreamstime stock photos
car key: ulisse | dreamstime stock photos
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