Car loan or installment loan – how much can the loan amount be?
Anyone who decides to buy a new mid-range car has to estimate up to 20,000 USD. A small car is possible in the segment of around 10,000 USD. The upper middle class demands a loan amount of up to 30,000 USD or more. Borrowers should set an upper limit.
Only then should the car be selected. It is important to note that the loan installments result from the loan amount. In general, a loan installment should always adjust to income. This can be done with an appropriate term. So a long term brings a low credit rate, while a short term brings high credit rates. If you can only pay a low credit rate, you should perhaps look at the financing with a final rate.
The loan amount can then be higher, but the rate remains low. If the borrower can make a down payment, as is customary with a car dealer, the rate can be even lower.
Car loan or installment loan – the advantages and disadvantages of the final installment
If you have a rather low monthly budget and don’t want to do without an upper mid-range car, you can apply for a down payment with the appropriate down payment from the car dealer. With the down payment, rate will decrease again.
But there is to be considered that the loan costs with this type of financing are generally more expensive than with a car loan or installment loan. The reason, the final installment pays interest over the entire term.
If car buyers can save the final installment due at the end of the term at the same time as the installment is paid, the final installment will be financed without any problems. However, if the final installment needs to be financed further, difficulties can arise.
Especially when the customer’s financial situation has deteriorated and financing is no longer possible. Then the car has to go back to the dealer.
If the residual value of the car does not cover the final installment, there are additional costs.
Car loan or installment loan – special installment loan
A car can of course also be financed with a special car loan as an installment loan from a bank. With this special installment loan from banks, car buyers can expect huge discounts from car dealers. The effect of this is that the loan amount is reduced. Borrowers have the option of choosing a dedicated installment loan or a normal installment loan.
The earmarked installment loan is then used only for the car purchase. While the classic installment loan can be used freely.
The repayment is made in constant monthly installments, with the loan installment also including the interest. A down payment does not have to be made, but it can be an advantage, because the loan amount and the monthly installment will be lower.
Borrowers should know that a down payment does not always have to be made in cash. The old car can serve as a down payment.
Conditions – car loan or installment loan?
As with any other type of loan, the conditions for an installment loan depend on the creditworthiness of the borrower. This is usually checked against proof of income from the past three months.
In addition, the credit bureau query is an important credit check. The credit bureau must not be charged when a loan request is made. The borrower can influence the amount of the interest rate if he chooses a shorter term or makes a down payment. Agreeing a higher final rate would also be an opportunity to improve the conditions.
Since the loan offers of the banks differ very much from each other, a cheap comparison should be looked for with a loan comparison.
Loan comparison – find car loan or installment loan?
Before a loan comparison is made, the loan amount should be determined. This can then be entered in the comparison with the desired term. The borrower will immediately see the amount of the loan rate and the interest rate. Regarding the interest rate, however, it should be mentioned that this does not apply to all customers.
Most of the time, the interest rate will depend on the customer’s creditworthiness. To adjust the credit rate to his income, a longer or a shorter term can be chosen. A cheap car loan or installment loan shows up if, for example, free special repayments can be made without additional costs. A rate suspension should also be allowed.
If you observe these different conditions, you will find the right lender with the loan comparison. This should not only be characterized by a good interest rate, but should also be adapted to the borrower’s wishes.
Note the following points when comparing loans:
- The effective interest rate is important, it shows all the costs of a loan
- Any fees or processing costs apply
- It is important whether free special repayments are allowed
- Suspension or deferral of the first installment
- Reduction of the monthly rate through a down payment
Pay attention to the cash discount on car loans or installment loans
There are many car banks that lure customers with particularly favorable interest rates. This can often be seen in the advertised 0% financing offered by car dealerships. But the car buyer should know that these offers are not available for all vehicle models. Usually only certain models or only new cars are affected.
But even if this financing works, it is still worth checking the banks’ loan offers. Because by taking out an installment loan from a bank, the borrower can expect a cash discount from the dealer.
If the car loan is financed through the dealer bank, this discount does not apply.
If you opt for a loan from the bank, you can use this money to pay the car immediately in cash. So the dealer does not have to wait for his money.
The dealer pays for this advantage with a discount that can be worthwhile for the car buyer. If you still have the choice between a car loan or installment loan, you should check all eventualities, as well as advantages and disadvantages of the individual loan types, and then decide.