What do you guess

Buying a car in installments, what should you watch out for?

Source: AXA

Unfortunately, the old car has had its day and is already on the way to car heaven. Now the decision has been made: the next one should be a new car! But the wallet is almost empty and time is of the essence. Is it worth buying in installments and what options are currently available?

Life hasn't gotten cheaper and demands grow over time. Where there was an old Passat yesterday, there should be a stylish new car today. Since we as consumers are often shaped by the rule: "Save first, then buy", we do not like to run into debt. But when there is time constraint, the household budget is empty or interest rates are extremely low, then one is also open to alternatives The model is financing.

Cash laughs

Buying a car can be very easy if you pay in cash. And rightly so, because in many cases the retailer is happy to grant a cash discount.
For this reason, if interest rates are low, an installment loan from the house bank may also make sense in order to persuade the trader to get an opulent discount by paying cash. Asking doesn't cost anything, on the contrary - you often save money.

The classic financing

Many dealers offer the classic installment purchase through a car bank. That means that the bank of the vehicle manufacturer or the financing partner of the car dealership offers cheap financing with an interest rate that is partly below the usual interest rates for a call money or, in extreme cases, even a current account. The difference between the credit interest on the account and the car loan interest, which in some cases even amounts to 0%, can even generate profits. Over a variable term of up to eight years, rates tailored to the personal situation can be agreed. When the last installment is paid off, the vehicle becomes the property of the borrower. The advantage of the installment loan is the often given option of terminating the loan early with higher payments or by paying the remaining debt.

Balloon funding

The so-called balloon financing is also concluded by the dealer through a car bank. At the beginning of the financing, a small down payment is usually made and then many low monthly payments are paid off. A sticking point here is that only part of the loan is repaid through the installments. The problem usually shows up at the end in the form of a remaining amount, which is often up to half of the total price. This remaining amount must be paid either in cash or in the form of follow-up financing. In addition, due to the usually long term, you are burdened with excessive interest and the loan is only paid off very slowly.

The top seller: the three-way financing

A financing model that almost every manufacturer currently has on offer is three-way financing. The length of the contract is between one and four years. The monthly installments are often much smaller than with traditional loans. After paying a higher down payment of approx. 20% of the new car value, favorable installments are paid off over a period of up to approx. 60 months. However, as with the balloon loan, there is often a high closing rate.

The benefits of three-way financing are easy to explain. The buyer has more room to make decisions here. He can give himself enough time to decide whether or not to finally purchase the vehicle. After the end of the three-way financing, the car can often be further financed with a classic installment contract. Installments that have been paid will be offset against the remaining loan amount. Alternatively, the car can simply be returned, with payments already made, as with leasing, being offset. The vehicle is then returned to the dealer under the conditions specified at the beginning. Alternatively, by paying the outstanding final installment, the car can also be bought immediately.

What about my own bank?

Unfortunately, many banks and savings banks cannot keep up with the cheap loans from the auto industry. Promotional interest rates of up to zero percent are a number that "normal" banks cannot or do not want to afford. Some cheap loans are available from direct banks. It is definitely worth taking a closer look at their offers, as the possibility of a To be able to pay cash, often a larger discount can be achieved on the part of the merchant.

What is the benefit of residual debt insurance?

Many dealers do not check whether completed loans make sense for the borrower and whether the financing is secured for the longer term. Here, the advice given to car dealers often lags behind, because car salespeople are not bank employees. A residual debt insurance is intended to provide assistance in the event of loss of earnings due to illness or accident or in the event of death. Insolvency due to unemployment is often excluded in the policies. In many cases, insurance is not necessary, as the value of the vehicle is often sufficient to secure the loan.

What about leasing?

If you only want to use a car for everyday use and not own it, leasing is an alternative. Low monthly payments and a small down payment, which in some cases can also be omitted, make leasing attractive for drivers who need a high-quality car quickly without large funds. Direct monthly costs and a term of usually two to three years make leasing interesting for the self-employed. But leasing has a big catch: Since leasing is a long-term rental, almost all leasing contracts state that the lessee has to go to the manufacturer's contractor for service, maintenance and repairs. Since these are often much more expensive than the independent motor vehicle specialist companies with the same performance, there is a risk of extra expenses. There is also a cost trap when the leased vehicle is returned. Experience has shown that small defects are then searched for in order to demand a compensation amount from the leasing customer.

Is it worth taking over a lease?

From time to time there will be cases in which a lessee cannot or does not want to continue to perform its contract. Then there is the possibility that someone else will take over the leasing contract. The contract then continues until its originally agreed end. A leasing contract with a term of two years, which is replaced after 12 months, then continues for another year.

The new lessee accepts all the terms of the contract, so in addition to the term, the monthly costs and the mileage limit are retained. However, there are still points that the replacing contractor can negotiate with his predecessor. This includes the entry fee, which was paid when the contract was signed, as well as the fee for the transfer of the contract. If it is foreseeable at the time of takeover that the mileage limit will be exceeded or the vehicle has minor damage, the new lessee should be compensated for this upon takeover.

Anyone who replaces a leasing contract is usually in a very good negotiating position. After all, most contracts are terminated due to a predicament. This can therefore be a sensible option for drivers on a tight budget.

The driver is spoiled for choice. When it comes to financing, it is important to compare the term, interest and hidden costs as well as the initial and final installments. When buying a car, get as many offers as possible: from your house bank, from the car bank and from direct banks ... Think about which funds you would like to use over which period of time. Make sure you count with the "sharp pencil", as premature termination of a financing arrangement often brings many disadvantages and problems with it.
When it comes to financing, leasing and insurance, always pay attention to the small print, because there may be regulations that make the offer, which often seems cheap at first glance, become expensive!

By the way ... you can find a workshop in our workshop search that you can trust to entrust your car to

Do you have any questions or are you looking for answers to topics, then send us your questions about driving! This email address is being protected from spam bots! To display JavaScript must be turned on!

Source: Meliha Sarper / ACE Auto Club Europa; ADAC e.V .; AXA

  Related articles: