For years now, the trend in car buying has been away from cash payment to the car financing. On the one hand, this is due to the high purchase price, especially for a new car or one that is not very used. On the other hand, the low interest rates make a car loan seem lucrative. And you often need your liquidity to renovate your house, build a carport or go on a major vacation trip. Whether financing, leasing or cash payment – everything has its advantages and disadvantages.
Car financing, leasing or cash payment is the question – image: q.Pictures – pixelio.De
Anyone interested in car financing has it relatively easy today. He enters the data via a car loan calculator. As a rule, the prospective borrower needs the purchase price and the term. The longer the term, the lower the monthly installments. However, the loan will be more expensive overall. Another popular form of car financing is the so-called "balloon financing". In this case, the purchase price is not paid off in constant monthly installments, but a redemption amount remains at the end of the transaction. This reduces monthly payments, especially for expensive vehicles. However, the amount paid off should not be significantly higher than the residual value of the vehicle. For the credit decision not only the interest rate is decisive.
The total cost of the loan (processing fee, arrangement fee, etc.) is important.). A car manufacturer may have a promotion offer with low interest rates and no down payment – this would then be a favorable alternative. Anyone who wants to buy a used car and finance it should have the vehicle realistically appraised. Otherwise you’ll have a rude awakening one or two years later.
The alternative to the installment loan is the car leasing. This is possible both with and without down payment. The lessee does not buy the vehicle, but rents it. This means a lower risk, since he does not bear the loss in value. He simply returns the car at the end of the term. If you don’t want to make major repairs or replace worn parts, you can always buy a new car every 36 months. However, leasing is only really favorable for few drivers and for small cars. In addition, at the end of the leasing period, the condition of the vehicle is evaluated. Under certain circumstances, the lessee pays a considerable premium for dents, scratches, wear and tear, or exceeding the contractually agreed mileage. First and foremost, companies benefit from leasing contracts because they can deduct both the sales tax and the leasing rate from their taxes. Private individuals who appreciate the risk-free change of vehicle will be able to live well with leasing.
If you are liquid, you can pay for your dream car in cash. Cash on hand helps to negotiate decent discounts with dealers or private individuals. Not everyone will go for this. If the dealer is already paying more for a used car, he will not give an additional large discount. For private individuals, this usually only works if they need money urgently. Another advantage of paying in cash is flexibility. with the purchase, the buyer acquires ownership of the vehicle and receives the vehicle title. If the vehicle is not suitable, it can be sold again relatively quickly. With an installment loan or a leasing contract, the car buyer commits himself over a certain period of time. The car title is not available. An early change of vehicle is not so easy to make. So if you don’t restrict your liquidity by paying cash, you can also pay for your car in cash during periods of low interest rates. In high interest periods this looks different. In this case, financing with an interest rate of 0.9% is usually more favorable, if the investment has an interest rate of 3.9%.
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