Have you become more in the family or is it simply time to buy a new car ? In addition to which brand, model and color you should choose, you are probably also thinking about how you can best finance the car purchase.
It is a privilege to be able to trudge to the car dealer and buy your new car in cash. And if you belong to the crowd that does not have that opportunity, there are fortunately several other ways to go.
We have listed some things that are important to consider when making a decision on how to finance the purchase of your new car. How you choose to go about it can be quite important for the total cost.
Review your budget and set a maximum ceiling
The first thing you should do is calculate how much you can actually afford to spend on the car each month. And do not forget that there must be room for all ancillary costs such as inspection, fuel, tax and service.
Then make it easier for yourself by setting a maximum ceiling that is reasonable and fits in your budget – and do it before you start looking, otherwise it is easy to get eager and attracted by all the nice cars on the market.
Cash contribution or not
As I said, there are different ways to finance the car purchase. A decisive factor is whether you have / want to pay a cash deposit or not. Underwriting a car loan from a car dealer or a bank requires a cash investment of 20 percent of the car’s total price.
The loan amount is then determined by the size of your cash contribution. If you want greater flexibility around the loan amount and want to take out a loan that covers the entire purchase price, it is instead a blank loan that is relevant for you.
Compare interest rates
Today, the interest rate on unsecured loans is usually as favorable as the interest rate on a car loan . As always when it comes to loans, it is important to compare interest rates with different banks and on the different types of loans that are relevant.
To avoid deteriorating creditworthiness due to too much credit information in connection with applying for several loans, it is a good idea to let a loan intermediary make the comparison for you.
In this way, a comparison is made between several different banks on only one credit report. In the end, it also usually results in better conditions and many saved thousands.
Think about the term
Depending on what your conditions look like, you can choose whether you want to repay the car for a longer or shorter period of time. Go back to your budget and be realistic about how much you can afford to pay each month.
In general, a shorter term on a loan means a higher monthly cost but a lower total cost and a longer term means a lower monthly cost but a higher total cost. The maximum repayment period on a car loan is usually 5 years. A private loan has a repayment period of up to 18 years and more flexibility to control the monthly cost.
Can you use the home as security for the car?
As I said, car and unsecured loans usually have equivalent interest rates. But a loan on your home has in most cases a lower interest rate, so it may be a good idea to check with your current bank if there is room and opportunity to increase the home loan further to buy a car or redeem your current car loan.
Fix financing first
It can be an advantage to have the financing clear before you go and look at cars. Car dealers often use low-interest car financing as a ploy to attract new customers, but if you have already fixed the financing, it gives you many times more room to bargain on the car price – and it almost always pays off.
Worth remembering if you would like your car in the future is that a car loan in many cases results in a lower profit on a sale because the credit is then linked to the car and must be redeemed before it is transferred.
A blank loan is not directly linked to the car, which means that you thus have the opportunity to get a larger amount in connection with the sale.
Good luck with your car deal! We at Lånekoll are available to you if you have any questions or need help negotiating your interest rates.