The purchase of a new car is one of the biggest investments that many consumers make in their lives. If the cash is missing, it must be an attractive financing. This can come from a branch bank or an online bank. It is important that consumers compare offers and find out in detail about the variants. This way a suitable financing offer with good conditions can be found.
The most important thing at a glance:
- New cars can be financed with different instruments: installment credit, balloon credit and cash.
- Car loans are provided by partner banks of car dealerships as well as independent banks, with the latter usually offering better conditions.
- Borrowers should always compare multiple bids to find the provider with the lowest interest rates.
What is a new car financing?
A new car financing is the financing of vehicles that are either brand new or with daily approval. In principle, day registration is a special form of new car business in which dealers can offer their customers special discounts. Legally speaking, a car is a new car if the brand new vehicle is offered unchanged and there is a maximum of twelve months between the production and the conclusion of the purchase contract .
Which types of financing are available?
Consumers can finance a new car in three different ways. These are cash payments, financing via a regular loan and three-way financing or similar balloon financing.
Cash: Pay cash at the dealer
Cash payment in connection with the purchase of a new car means that the dealer receives the purchase price in cash from the buyer. How the buyer got the money does not matter. This means that the cash can be savings or a loan that the consumer has taken out of another bank independently of the dealer bank. Some dealers offer discounts if the customer pays immediately. Others, however, do not like paying in cash because they may miss out on a lucrative lending transaction.
But for the customer, the cash payment – mind you without borrowing – always has the advantage that the car immediately passes into ownership. In addition, if consumers dispute the purchase from their own resources, they will not incur any additional costs, as they would if they took out a car loan.
Tip: cash or financing? First check costs, then decide.
If the money is not liquid, but is currently tied to securities, for example, the car buyer should check to what extent the sale of the securities is financially detrimental. If the interest losses are lower than the costs of financing through a third-party bank, the cash payment is the economically correct decision. But if the interest losses are higher, it makes sense to finance the car.
Financing a new car through a car loan
If not enough cash is available, the new car can be financed. This can be done either through the partner bank of the dealership or via a bank independent of the dealership. In this case, a car loan comparison is definitely recommended to find the cheapest deal.
Financing via dealer bank
These aspects play a role in car financing via the dealer bank:
- When financing the car through the partner bank, it is possible to get very good conditions for certain (special) models. Who gets involved, can sometimes save a lot of money. However, it should be noted that special models often do not easily find a new buyer for later sales, as do standard production models.
- For partner banks, some offers are inflexible in terms of repayment and loan amount. This means that the needs of the borrower are only partially addressed.
- Many favorable offers from partner banks are targeted to non-binding price recommendations. For this reason, the negotiation of the purchase price is usually unsuccessful.
- Car financing through a dealer bank in many cases requires a down payment of between 20 and 30 percent of the new car price.
- Car dealerships occasionally advertise zero-percent financing or offer car financing at monthly discount rates. However, it may happen that additional costs (insurance, high purchase prices of the vehicle) are reflected in the fine print.
- Last but not least, a car salesman and not a finance expert arranges a loan to a customer. Targeted queries regarding details of the credit agreement can not always be answered correctly and in full due to a lack of specialist knowledge.
Financing via free bank
Car financing through a bank independent of the dealership is usually more consumer friendly. This has several reasons:
- If consumers borrow money from a bank independent of the dealership, the vehicle model does not matter in principle. If you find a cheap loan provider, you can use the money for any model.
- A deposit on the purchase price is not mandatory.
- A non-bank bank is free to set financing terms such as term, special repayments or a grace period.
- The employee of the financial institution is a specialist and can answer all questions regarding car loan.
Even though car financing through an independent bank may at first seem much more consumer-friendly, the partner bank’s offers should be compared with what other banks offer. Only then does it become apparent who really is the best financing partner.
Tip: Five-year loans are ideal for new car financing because they are cheaper than longer-term loans. The reason is that the risk of repairs and costly maintenance is low during the first five years. In this respect, the car could be sold well within this period, if the borrower could not meet his payment obligations.
The three-way financing: This is how the balloon loan works
The three-way financing is a combination of credit and leasing. With this form of financing, borrowers pay only a small portion back to the lender during the term of the loan, sometimes even only the interest. At the end of the term, a large final installment is waiting for the consumer. This high final rate is also referred to as a balloon – hence the name balloon financing. The three ways open to the consumer now are the following:
- Repay the remaining debt in one sum and keep the car.
- Continue to finance remaining debt / extend the financing of the car.
- Return the car to the dealer. The value of the vehicle is offset against the remaining debt. The difference is to be repaid to the lender.
To note in this type of auto financing the uncertainties that arise especially in the third way. The dealer determines the vehicle value and will most likely value it for his own benefit. It is therefore recommended in the contract that an independent appraiser determine the value of the vehicle at the time of return. Three-way financing is basically the most expensive option and should only be considered when consumers value flexibility.
Tip: Any consumer who takes out a car loan for new car financing, usually committed to payments over a period of several years. The amount of the monthly burden must therefore fit the long-term personal budget. Therefore, a meticulous review of your own financial framework is recommended.
Apply for a loan for a new car: It succeeds quickly and smoothly.
Applying for a loan requires only a few steps. Prerequisite for the approval is first that the applicant is 18 years old and has a main residence in Germany. In addition, a German bank account is required, on which regular cash receipts such as the salary are recorded. If these basic requirements are met, the application is made according to the following scheme:
- Applicants select the loan amount, duration and purpose for their loan – in this case new vehicle
- After providing the bank details and some personal data, a loan offer will be created.
- By means of uncomplicated video call the identification takes place. The signature on the loan agreement put applicants electronically.
- Banks check the creditworthiness of applicants, therefore certain financial information must be provided during the credit check. In addition, banks check the information provided by SCHUFA. For this reason, prospective creditors must give consent for the bank to obtain the information.
- The loan is disbursed after checking the creditworthiness.
Conclusion: Financing new cars online is up to date and uncomplicated
Those who do not have sufficient reserves to buy a new car directly should usually finance it through a car loan from an independent bank. Borrowers can compare different offers from banks to get the cheapest possible loan. In particular with direct and on-line banks the application runs off then very uncomplicatedly.