Among the advantages of car loans, one should first of all note a lower interest rate in comparison with a consumer loan. In addition, there are numerous programs, the participants of which are auto centers, banks and insurance companies that offer more favorable conditions for buying a car on credit than for own funds.
In addition, in this case, they offer a purchase using borrowed funds not only of the vehicle itself, but also of the CASCO insurance policy and auto parts for the car. In this article we will discover the various advantages of car loans. So, let’s take a look at it.
The minimum interest rate for a car loan is primarily due to the lower probability of non-repayment of funds in comparison with the same consumer loan. Less risks are associated with the receipt of funds not by the borrower himself, but by the car dealer, as well as with the mandatory pledge of the purchased car. In some cases, there are special targeted programs, according to which the interest rate is partially compensated to the bank by the vehicle manufacturer or the state.
When thinking about how to buy a car on credit, keep in mind that there are certain disadvantages to car loans. First of all, most banks require high-quality car alarm and mechanical anti-theft devices. And this condition must be met even before the vehicle leaves the car dealership. That is, you will have to entrust the operation to official dealers, and the cost of their services will be one and a half times higher than the average price for similar services in other companies.
In addition, having thought about how to buy a car on credit, and using this type of loan, be prepared to service your vehicle exclusively from an authorized dealer. Otherwise, the car loan rate will increase significantly.
Well, do not forget about the prerequisite for issuing a car loan – the issuance of a CASCO insurance policy . When applying for a policy to an insurance company cooperating with a bank, be prepared to overpay it. If you decide to insure a car in a third-party organization, the interest rate will increase, approaching the rate for a regular consumer loan (from 7% to 13-15% per annum). Well, remember that the money that is paid when an insured event occurs is not due to you, but to the bank.
In fact, CASCO insurance is voluntary. However, if you apply to the bank for a car loan, it is included in the mandatory terms of the agreement. This is due to the fact that your vehicle becomes the subject of a pledge, which means it must be secured in any case.
Insurance and the interest rate on a loan are closely related. Banks are not empowered to force customers to take out insurance. However, in this case, they can give you money at a higher percentage, justifying this decision with their doubts about the return of the loan in case of damage or loss of the car.
If you decide to buy a car on credit, using this type of loan, then keep in mind that your vehicle will be pledged by the bank, respectively, dispose of it (sell, rent, etc.) without obtaining his consent , you won’t succeed. In addition, due to the overpayment of interest, the cost of the car will be much higher than when buying with your own funds. However, you will become the happy owner of the desired car right now, and not in the future, when you will be able to accumulate the required amount.
Despite this, car loans are in high demand among the population. Statistics show that in 2017, 655 thousand Russians applied to banks for this type of loan for a total of 421 billion rubles. Compared to 2016, the number of loan agreements increased by 42.5%, while the volume of lending increased by 52.5%. The amount of borrowed funds requested continues to grow, in 2017 it amounted to an average of 642 thousand rubles, the average term of car loans was 40 months (3.3 years). Basically, citizens of 30–39 years old applied for this banking product.
Today, along with traditional car loans, in accordance with the terms of which the debt to the bank is repaid by making equal monthly payments, lending organizations offer buy-back car loans with a residual payment.
The main difference between this type of loan is the small monthly amount paid during the first three years (about 15-17 thousand, if we are talking about buying a vehicle worth about a million rubles). After three years, the residual payment is about four hundred thousand, which must be repaid in a lump sum. Otherwise, the car is returned to the car dealership, which sells it and pays the bank using the proceeds from the sale.
Such a program attracts the need to make monthly small payments. Of course, at the end of the grace period there remains a fairly large balance of debt, but it will need to be repaid only after three years. And during this time, there is a possibility of a change in the financial situation, the emergence of the possibility of early payments, etc. When applying for this banking product, the client either assumes that he will pay the bank gradually, or rent the car in order to purchase a new one on similar terms.