Auto Loan, Car Loan – How to Finance the Purchase of a Vehicle?



 

The auto loan / motorcycle loan is an installment loan allowing you to finance the purchase of a new or used vehicle. Depending on whether you are talking to a bank, a credit company or directly to your dealer, there are certain advantages and disadvantages to your loan.

Which auto financing is the most interesting for the purchase of a new vehicle? What is “balloon credit”? Finally, what are the conditions for granting the car / motorcycle loan, depending on the financial institution where you borrow? Follow the guide!

 

Car loan, auto loan, auto financing … what difference?

Concretely, none! If you want to make a car / motorcycle loan for a car or a motorcycle, the proposed credit will be an installment loan. The only difference ? This type of credit is “earmarked”, which means that the money can only be used for the purchase of your vehicle (supporting document), regardless of whether it is a car, a car or a car. a caravan or a motorcycle.

 

What kind of loan will I turn to for my auto loan?

Different banks (banks, credit companies and dealers) allow professionals and individuals to borrow money to finance the purchase of a vehicle.

Depending on the proposed credit, the award conditions, the interest rates and the maximum repayment period may differ:

The balloon credit

The balloon credit (or sale by balloon payment) allows you to repay lower monthly payments. In return, once the term has arrived, a final payment (the credit balance) at a much higher amount will be claimed (the so-called “balloon”).

If at first sight, the balloon credit may seem interesting, it quickly becomes apparent that by adding up the monthly payments and the outstanding balance, the total amount paid is comparatively higher than with the other types of credits.

Moreover, f or many contractors who tend to forget that the latter amount still to be solved is sometimes the beginning of trouble (a new installment credit to be carried if they have not thought about putting enough side).

Unless you have planned to resell the vehicle once the loan is repaid (to change again) the balloon credit is ultimately not an attractive financing formula for the purchase of a new vehicle.

 

0% financing

0% financing is a 0% interest loan offered by most car dealerships at the time of purchase of a new vehicle.

If you are thinking of letting yourself be tempted by this type of auto loan, never forget that a “free loan” does not exist and that the lender will always find his account .

Thus, to find your way around, the dealer will give you a very small discount on the purchase of your new car (knowing that in Belgium, it is traditional to be granted a discount sometimes exceeding 20%) and under will estimate the trade-in value of your old vehicle .

The repayment term will finally be shortened, the amount borrowed to be repaid within a maximum period of 48 to 60 months .

In the end, if you do the math, by being granted only a 5% discount (instead of the traditional 20%), you pay more with a 0% loan than if you borrowed on a credit higher interest (on average between 1-2%) from a credit company or a bank.

 

Auto credit

The auto loan / motorcycle loan (or car loan) is an installment loan allowing you to finance the purchase of a new or used vehicle (car or motorcycle) at an interesting interest rate.

With this type of credit, no bad surprises. You know (even before the contract is signed) the duration, the interest rate, the number of monthly payments to be repaid and the total amount borrowed.

Moreover, with this type of credit, you can borrow up to 110% of the desired amount, in order to be able to finance the taxes and insurance that accompany the purchase of a new vehicle. Finally, as long as the vehicle is less than 3 years old, you can benefit from the advantageous rate “new vehicle”.

Would you like to know more about MiD Finance’s car loan (intermediary in credit)? Start your credit application via our online simulator.

 

The installment loan

The installment loan (or personal loan) is an “unallocated” consumer credit allowing you to finance what you want , once the liquidity obtained.

With this type of credit, you know from the start the total amount borrowed, the number of monthly payments to repay, the duration and the interest rate. For many, installment credit offers flexibility and appreciated freedom that they do not find in other forms of financing.

 

Comparative Table: What kind of credit to finance my car?

Let’s recap: While 0% financing and balloon credit seem at first glance more advantageous financing solutions, they are ultimately far more expensive.

Auto loan (or car loan) remains the ideal solution (with an interest rate globally more interesting) while the installment loan gives you flexibility and freedom.

Loan type Advantages disadvantages
Balloon Credit
  • Lower monthly payments
  • A last big monthly payment remains to be paid (the balloon)
  • In the end, proves more expensive
0% financing
  • Best interest rate (0%)
  • You benefit from a lower discount
  • The recovery value of your old vehicle is underestimated
  • In the end, you pay more than if you borrowed with a higher interest rate
  • Due date of repayment rather short
Car credit (new)
  • Possibility to borrow up to 120% of the desired amount
  • Longer repayment term
  • Interest rate (a little) higher than the 0% rate
Ready to install
  • Unallocated credit
  • Flexibility and freedom of use of the cash obtained
  • Lower interest rate compared to other types of auto loans

 

 

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