These days, almost anyone can afford a new car. If it is not bought and paid for in cash, one can borrow, rent or rent a car. Each of these solutions is subject to other rules.
According to the survey conducted by ARC Rynek I Opinia at the request of Volkswagen Financial Services in May 2021, 85% of respondents said they paid for their used car in cash. This method of financing cars already on the market should come as no surprise. Cars with a history of a few years of use can be purchased for several thousand Polish zlotys.
But the situation is completely different for new cars purchased from car dealerships. Prices for new models start at several tens of thousands of Polish zlotys. For this reason, an average citizen can rarely afford to buy such a car and pay in cash. Even if someone is extremely determined, it takes at least a few years to collect the right amount. But obviously no one would like to wait that long and people generally need a car now. What can they do then?
Fortunately, the lack of sufficient funds is no longer a problem. The purchase of a new car can be financed by a loan or by other means. And if you don’t want to have such liabilities, you can opt for a lease or a long-term rental.
The best auto loan, what are the options?
If you choose to take out a bank loan to pay for the purchased car, you have two options: either take out a classic car loan, or take out a cash loan intended for this purchase.
Auto credit What do you need to know?
Many banks offer auto loans. Note that this type of financing instrument is only intended for the purchase of a vehicle (car, motorcycle, scooter, yacht, etc.). This means that the money obtained from the bank cannot be spent for other purposes.
What to do to get the best auto credit? The essential condition for obtaining such a loan is to provide a security on the vehicle purchased in favor of the bank.
This guarantee can take one of the following forms:
- transfer of ownership to secure repayment of the loan
- registered pledge
- assignment of rights and obligations under civil liability insurance and an accident and theft insurance policy
- leave a vehicle history card on deposit.
Does it sound too complicated? Let’s explain everything. Transfer of ownership to secure repayment of the loan simply means the transfer of property rights from the debtor to the creditor (in this case from the buyer of the car to the bank that granted the car loan). When the buyer of the vehicle has paid off all his debts to the bank, he will recover all his rights. But until then the bank will be the legal owner of the car.
Deposit registered on the car is another form of collateral in which the car buyer retains ownership rights, but if he stops repaying the loan, the bank can repossess the car to satisfy his debts.
Each car admitted to travel on the roads must have valid third party liability insurance. In the case of a car loan, banks often also require additional insurance against accidents and theft. In order to secure their interests, they may also require that the borrower assign rights under the policy.
Payments from insurance companies
This means that when purchasing insurance, the car owner should provide that any potential compensation (or part thereof) should be paid in favor of the bank. For example, if a car purchased under a car loan is stolen, the funds will be paid by the insurance company to the bank and not to the owner of the car.
This latter form of auto loan collateral is the placement of a vehicle history card on deposit. In this case, no formal condition must be fulfilled. The buyer of the car simply has to hand over the vehicle history card to the bank to be kept on deposit.
What is the point of this? It is not possible to sell the car or make changes to the vehicle registration document without the vehicle history card. In practice, this means that any approach relating to the car requires consultation with the bank. Once the total amount of the loan has been repaid, the vehicle history sheet is returned to the owner.
Take a car loan?
When is it a good idea to take out a car loan? Of course, when we don’t like to fulfill formal requirements and want someone else to do it for us. In the event of the purchase of a new car, it is generally an employee of a showroom or another authorized person who will take care of everything related to the loan.
If it is not a problem for you that during the entire term of the loan you actually have no freedom in the disposition of the car, this may be the right solution provided the costs have been calculated earlier.
What if you need a loan but prefer not to make your bank-dependent car use decisions? Then a classic cash loan is a good solution.
Money loan. Another way to pay for the purchase of a car
A cash loan can be used to finance both the purchase of a car and many other liabilities that require larger financial expenses. Banks are generally not interested in knowing what the loaned money will be used for.
Those who intend to use such a loan to cover the costs of purchasing a car do not need to fulfill any additional formal requirements related to the provision of a guarantee on the vehicle. Unfortunately, compared to a car loan, a cash loan carries a slightly higher interest, which in practice means higher expenses.
You don’t need to go to the bank in person if you want to take out a cash loan. An application can be easily filed via the Internet. If you are lucky, you can even get the decision from the bank on the same day. But remember that the time after which you get a loan will depend on your creditworthiness. If you have a credible source of income (eg an employment contract), the bank should easily accept your request.
When is it a good idea to take out a cash loan if you plan to use it to pay for a car purchase? This option should be considered primarily by individuals who want complete freedom in the disposition of the purchased car and the funds allocated to it.
What should you do if you can’t borrow to buy a car for some reason or just don’t want a loan but urgently need a car? Then you have two more options.
Car rental. How it works?
Lease is a type of contract in which one party gives the other the right to use a specific object for the agreed term in exchange for regular payments (rental fees). In this case, the object will obviously be a car.
Not so long ago, leasing was mainly associated with company cars. But currently, the consumer lease addressed to individuals is increasingly popular.
In the event of a car rental for consumption, the lessee, or the user of the car, transfers each month an amount specified in the contract to the account of the lessor. In return, the lessee can use the car but is not the legal owner. But leasing is based on the idea that when the contract expires, the user of the car can buy it and become the owner.
When is a good idea to hire a car? Most rental companies use a simplified method of checking the client’s financial capacity and the decision is made based on the income data presented by the lessee. In addition, the rental fee also includes insurance, maintenance or courtesy car costs.
Therefore, the car user does not need to organize these objects on his own. For this reason, renting is a good idea, for example, when you want to keep the formalities involved in buying and using the car to a minimum.
When you don’t want to own a car – long-term rental
Long-term car rental is in practice like leasing a car. However, in the case of a long-term rental, you cannot actually buy back the car after the end of the contract. Still, there are companies in the market that offer such an option. However, this is generally not a financially beneficial option.
Like a lease, long-term rental is based on an agreement between a person who rents a car and the rental organization. When drafting the contract, the lessor must declare the estimated annual mileage. On this basis, the amount of a monthly fee and the final valuation of the vehicle are prepared.
The regular fee also includes insurance, maintenance, etc. The difference between rental and long-term rental is in the amount of the monthly fee. Long-term rental is based on the assumption that after 2-4 years the user of the car will trade it in for a new model.
When does it make sense to choose long-term rental? Definitely when you don’t want to disclose your income for whatever reason. But you have to remember that some car rental companies require customers to have their own contribution in the amount of 5-10% of the value of the car. But this is not a standard and is generally for premium cars.
Consumers looking for a new car have a number of financing options to choose from. However, if they do not pay the car in cash but take a loan. They should remember that until all debts are paid off, the car will not be theirs.
It is the same for the lease or the long-term rental. Thus, it would be difficult to identify the best solution because everyone would have to consider the solutions adapted to their current economic situation.
Source: financial comparison site finanse.rankomat