Pros and cons of a car loan: programs, their features and conditions

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Purchasing a car with your own savings is not available to every citizen. A car loan will help solve the problem, the registration of which is not particularly difficult. Banks offer loan programs on various terms and conditions suitable for specific situations. In order to apply for a loan, you need to choose the best option for the contract, collect a package of documents and submit an application to the bank.

Financial institutions due to the current competitive environment are forced to lower interest rates and attract customers with profitable programs with small overpayments and simple registration. Before making a decision, it is necessary to understand the terms of the loan and the contract, to study all the offers of the banking services market. The procedure is greatly simplified if you have a certain amount on hand to pay off the down payment, and the higher it is, the lower the percentage of overpayment. A large number of lending programs allow you to purchase a car without the necessary amount for the purchase.

Types of lending programs

To choose the best program, it is better to familiarize yourself with all types of car loans, the pros, cons and problems for today:

1. Classic loan - the most profitable option, popular among the population and allowing you to buy a car with a minimum overpayment. The amount of the down payment is from 10% of the cost of the car, the rest of the amount is distributed over the entire loan term - from 1 to 5 years.
2. Express loan. The pros and cons of a car loan are obvious. Pros: a minimum package of documents, quick execution, no need for a certificate of income; disadvantage - high interest rate.
3. Loans without down payment. The requirements imposed by the credit institution on the solvency of the client are more stringent, unfavorable lending conditions may occur. The interest rate depends on the type of currency and loan terms.
4. Loans without insurance. Many banking organizations issue car loans without a hull policy, which is a mandatory item in other loan programs. The choice of vehicles offered under this program is limited. The cost of insurance is high, so getting rid of it is quite tempting, but it comes with a high interest rate and a higher down payment.
5. Trade-In. Service for the exchange of a used car for a new one. Part of the cost of the new car is paid by the used car, the remaining amount is paid by the client.
6. Buy-back - reverse creditransom. A program that involves the payment of the down payment, the last payment and part of the cost of the car before the end of the term. Deferred payment can be made by the customer or car dealer. The terms of the loan can be extended, however, in this case, the amount of the overpayment will increase.
7. Interest-free loan, or factoring. The client pays half the cost of the car, the remaining amount is divided into parts without interest.

The most profitable loan program can be chosen only after a thorough study of all the options offered. It is advisable to take into account, among other things, the possibilities and circumstances of the client himself, since preference may be given to different lending conditions depending on the specific situation.

Advantages of car loans

• The ability to purchase a car in the shortest possible time. Minimum savings allow you to buy a car, as they can be used as funds to pay off the down payment. The main requirement is sufficient income to repay the car loan.
• Preferential car loans. State programs stimulate the purchase of domestic cars by compensating for part of the loan interest. The programs apply to brands of cars assembled in the Russian Federation. The maximum cost of the car should not exceed 750 thousand rubles.
• Long payout period. Car loan terms vary from 1 to 5 years. Choosing a longer term allows you to lowermonthly payments, which may be convenient for the client, but leads to an increase in the total loan amount.

Disadvantages of a car loan

• Severe requirements for borrowers. To receive a car loan, the client must meet certain criteria: do not have a bad credit history, be within the established age limits, work in one place for more than three months, and so on.
• The vehicle acts as collateral. A car loan involves the issuance of a certain amount of money for the purchase of a car, respectively, it becomes a guarantee of repayment of the debt. Accordingly, the borrower risks losing the car.
• Auto insurance. Simultaneously with the registration of a car loan, many banking organizations require the purchase of a hull policy, which increases the total amount by 10%. You can refuse to purchase insurance, but this will increase the cost of the loan.
• Down payment. The amount of the down payment is 10-30% of the cost of the selected vehicle. The lack of a down payment can negatively affect the interest rate.
• Long procedure of registration. Collecting the package of necessary documents can take several weeks. Applying for an express loan can speed up this process, but the interest rate on it is much higher than on a regular one.
• Traffic jams. The availability of a car loan is both a plus and a minus, albeit indirect ones. The number of motorists is increasing faster than new highways are being built, making it difficulttraffic on city streets.

Applying a loan at a car dealership

You can apply for a car loan directly in the salon. Loan conditions may vary, but there are certain nuances for different types of loans. Today, almost all car dealerships offer to draw up a loan agreement when buying a car.

Pros and cons of a car loan in the salon

• Saving time.
• Convenience and ease of design.
• Quick receipt of loan funds.
• Wide range of lending programs offered by banks cooperating with the dealership.
• Getting bonuses or discounts from a car dealership.
• The loan amount may include the cost of additional equipment installed on the car.

Flaws

• Reducing the number of banks providing car loans.
• It is often not possible to choose an insurance agency, which significantly increases the cost of a comprehensive insurance policy.

When choosing a loan product, you must consider all the pros and cons of a car loan at a car dealership. Dealers and bank employees may be silent on certain points, which are written in small print in documents.

Special car loan programs

Some customers choose special offers from dealers and car dealerships - for example, Buy-back or Trade-in. Such systems are popular and have their own advantages and disadvantages.

Trade-in

The first installment on the loan is the cost of the old car. This program is one of the most attractive for those who wish to change their vehicle. The dealer buys the car from the client immediately, provided that its technical condition complies with the conditions of the program. The difference between the cost of the purchased car and the used car is paid by the borrower. Unlike the advantages of a consumer car loan, the disadvantages of a Trade-in loan lie in the limited choice of cars and the low cost of a used car.

Buy-back

The best loan program for those who like to change cars frequently. According to its terms, the cost of the selected car is divided into three parts:

1. Initial payment equal to 10-50% of the amount of the car.
2. "Comfortable period". Monthly payments, the amount of which is chosen in such a way that by the end of the payment period, 20-40% of the total loan amount remains.
3. Residual payment. The pros and cons of a Buy-back car loan include the amount that is frozen until the end of the monthly payments and is paid as a one-time payment. The client can either keep the car after paying off the loan, or sell it and pay off the balance of the loan from the proceeds from the sale. The remaining amount can be used as a down payment to buy a new car. Loan terms can be extended, but this will lead to an increase in overpayments.

Despite all the pros and cons, this type of car loan is popular. The advantages of the Buy-back program are insignificant monthly payments and the possibility of selling a car until the debt is paid off, the disadvantages are the need for servicing at an official service center, compulsory insurance and circular credit dependence. According to reviews, the pros and cons of car loans do not repel car enthusiasts from the decision to contact a bank or a car dealership to purchase a car.