You want to change your vehicle and you plan to use a credit is a simple and easy way to protect your purchasing power while making you happy. But how do I determine the credit I need?
To choose the auto loan that suits you best, you have several financing systems.
Assigned credit, car package, long-term lease with option to purchase, consumer credit, etc. Each offers specific terms that must be known before making a choice.
The characteristics of auto credit
To estimate the quality of a car loan, it is necessary to observe certain criteria, including the TEG or overall effective rate (the cost of your loan) and the duration of the credit: these are elements that directly determine the amount of the loan. monthly installments.
The cost of credit (TEG)
The percentage of the credit is the cost of the loan. It is annualized, that is, it represents the amount due on the amount borrowed for a single year multiplied by the duration of the credit (in years).
It is therefore important to have a low percentage to reduce monthly payments. This percentage usually includes the fees, if not, it is advisable to negotiate their free.
The duration of the loan
The duration of the credit adjusts your monthly payments and your purchasing power, but also affects the value of the vehicle at the end of repayment of the loan. The longer the duration will be longer its value will be low.
The maximum duration is 60 months. Obviously, it depends on the budget dedicated to the car. However, a significant personal contribution reduces the duration of the loan and therefore keep, once the loan is repaid, a good value argus to the vehicle.
Why a default insurance or borrower insurance? If you add to your credit a payment security on a potential inability to pay for various reasons (death, illness, disability, etc.), you protect yourself and this option will be appreciated by lenders.
The different formulas
We can account for up to five types of auto loans available on the loan market. Each has characteristics that are useful to know in order to obtain the best conditions.
The appropriated appropriation
The most common of them remains the so-called assigned credit. It consists of a loan by a paying agency exclusively dedicated and conditioned by the purchase of a motor vehicle. An estimate presented and explicitly mentioning the price of the vehicle triggers the credit and the purchase of the vehicle.
The duration of the loan is related to its amount, but also to the condition of the vehicle (new or used). Indeed, for a new car, the refund can spread over 7 maximum years while for a second hand, the duration does not generally exceed 6 years.
The interest of this type of credit lies in the purchase guarantees it provides to the borrower. They rest, among other things, on the fact that if the sale does not finalize, no loan will be committed.
Refunds are effective only when the car is officially and definitely purchased. That is, even if the credit agreement is signed and validated, it does not commit to the purchase.
Once the vehicle is purchased, the borrower has 14 days to retract.
The auto package
It’s an all-inclusive formula. Proposed directly by dealers or financial organizations. It usually includes vehicle price, warranty and extension, vehicle insurance, assistance, maintenance.
Consolidation of all these contracts allows lenders to reduce the price of insurance. All these services and more are included in the monthly payment. This can be advantageous, it remains relevant to compare them to obtain the best offer.
Loan for personal consumption
It is a free loan that is not destined for anything in particular. In fact, it can be assigned to the purchase of a car. It has no conditions of use, which makes it active as soon as it is signed.
Whatever the outcome of the purchasing process, it will be necessary to honor his monthly payments. In general, the amounts vary from 5,000 $ to 60,000 $ and more. The duration of the loan hardly exceeds 5 years.
Both long term rental formulas
There are two long-term rental options, one with the possibility of buying the vehicle at the end of the lease called rental with option to buy.
Rent with option to purchase
This formula starts with a rental of the vehicle at low cost (usually less than a conventional credit) ranging from 2 to 6 years.
A purchase option allows the signatory, if he wishes (it is an option not an obligation), to buy the vehicle at the end of the lease. However, this can trigger the option at any time of the rental: the price of the vehicle will be calculated according to the value and the time remaining.
Frequently, the LOA also offers guarantees and insurance. Finally, one of the advantages over long-term leasing (LLD) is not to be forced to give a contribution to obtain it.
Long term rental
Long-term rental or LLD differs from the previous one on two main points. The first point: the renter can never become the owner of the vehicle (no purchase option).
At the end of the rental, the vehicle is taken back; the second: the cost of the lease includes the maintenance of the vehicle, that is to say that in all circumstances it is the lender who is responsible for maintaining and repairing the loaned vehicle. In case of breakdown (a courtesy vehicle is proposed).
This advantage can satisfy people who do not want to worry about maintaining the vehicle and have the will to change every 6 years. For the price and the duration, the conditions are, more or less, the same as for a rental option purchase.
The laws that govern car credit
When looking for a cheap car loan, it is relevant to be well informed of the laws that govern them. This regulation makes it possible to define what is possible and what is not.
Two laws ensure compliance with consumer credit. They exist to protect the protagonists: borrowers and lenders. The Scrinever law and the Neiertz law are the main regulations to know.
Dating back to January 1978, reformed in April 2010 and applied since May 2011, the Scrinever law regulates all consumer loans below $ 75,000, including motor credit. It imposes on lenders a procedure to follow and ensures certain freedoms for borrowers.
The borrower must be able to study in advance an offer from the lender on which all information relating to the future credit must be specifically mentioned. These obligations are:
- the nature of the object or property to which the borrowed funds are intended
- the respective identities of the signatories
- the amount of the loan
- the conditions and terms of the contract (date, insurance, withdrawal, validity of the offer, etc.)
The duration of the offer usually runs over a fortnight. However, once signed the contract, the law grants 14 days of withdrawal period to the borrower.
Dating from 1991, the Neiertz law allows lending organizations to have access to the national file of personal credit incidents (FICP).
This helps prevent the risk of over-indebtedness of certain subscribers. It protects both the financial institutions of the bad payers, but also the borrowers who could find themselves in a difficult situation if their borrowing capacity capped at 33% was to be exceeded.
This is a prevention for both parties. If necessary, in order to reduce this debt, you have the auto loan redemption that can redeploy your loan.
Steps to obtain financing
To have a comprehensive approach to current offers in the automotive market, you can manually browse all manufacturers, visit a dealer’s website, browse the web, the signs that distribute vehicles of all brands; these distributors usually offer both new and used vehicles; it can be long and tedious. Also, there is a quick and handy tool: the online credit comparator.
Using online credit comparators
The simplicity of the simulator, as well as the speed of answers (quotes), give online credit simulators a considerable advantage over a manual search.
Detect the best TEG for a given car, get the best loan conditions become simple and fast gestures.
In the development of the credit simulation, the comparators ask the basic information for the granting of a credit: the sum of the loan envisaged, the duration of repayment, the amount of the monthly payment, the income of the borrower.
In a few clicks, it delivers all the organizations offering the best credits for the requested loan. All you have to do is click on the selected choice to get an answer, an agreement in principle and receive a quote accordingly.
It may be wise to apply for your own bank. Indeed, it can offer additional facilities for obtaining, in the sense that it is generally well placed to estimate the repayment capacity and seriousness of the borrower.
But in any case, the debt ratio and the household income are still the crucial elements that authorize or not the car loan.