The crisis is also affecting your car budget. Here’s how to lower your loan cost to get the best rate and terms.
Buying a car is always a delicate moment. Consumers often consider seeking professional advice on the technical aspects of their purchase. And since many drivers cannot finance their purchase in cash, too few consider seeking advice when choosing their car loan.
And yet today with the very wide choice of specific financing adapted to the automobile ( dedicated or assigned credit ), it is wise to know how to choose and negotiate the credit well according to the budget and your needs.
Read the small print
When you see certain advertisements or simply receive promotional letters and emails, you might be tempted to immediately subscribe to the car loan offer that seems the best or directly to the one offered by your dealer. The marketing strategies of lending institutions are extremely effective: high-quality brochures, attractive photos, and very low rates written in large, bold letters on the brochure.
Below are some elements to help you better understand the various clauses of the contract. Note that the conditions for obtaining credit are always specified on the document. But very often in very small print, at the bottom of the page or advertisement you are reading. These are the mandatory details (imposed by law) that indicate the conditions and actual costs for obtaining credit.
Insurance policies, terms of duration, or mandatory minimum amounts mentioned between two paragraphs (sometimes in the middle of a contract of more than 6 pages) written in small print, can turn against you in the event of a claim, vehicle theft, or reimbursement issues. Be careful, first piece of advice: read everything very patiently.
The initial contribution: how to include this element in your negotiations?
You take out a loan, that’s good. You have a deposit, that’s better. The banker is a trader like any other, and loan applicants often forget that in this respect, it’s possible to negotiate the “product” offered.
Don’t hesitate, the higher your deposit, the lower you can negotiate the borrowing rate (APR). If your deposit is substantial (from 25% of your purchase price), don’t hesitate to ask for a substantial discount on the application fee, or even just to eliminate this expense altogether.
If you are applying to several lending institutions, always make your request indicating the same contribution, otherwise the comparison will be distorted.The Annual Percentage Rate, or APR for short, is the rate you should consider first and foremost when making your choice (this applies to all types of loans, not just car loans). This rate takes into account the “price” of the loan as well as the application fees, all plus the insurance associated with your loan.
The APR expresses, as a percentage of the amount borrowed, the portion that you will have to repay to the lending institution. The nominal rate, on the other hand, simply expresses the “price” of your loan without taking into account additional costs.
Furthermore, significant differences are observed when comparing the APRs applied by different lending institutions, which range from 4.5 to 10%. This is another reason to be careful to compare the APR applied by the different institutions approached and not the nominal rate put forward in the sales pitch
Negotiating your car loan isn’t just about paying attention to the cost of borrowing, learning to clearly understand what’s behind the APR and other nominal rates, and effectively using your down payment to negotiate benefits. It’s also about identifying, right from the loan proposal stage, the conditions and specific features that can help you make your choice.
It’s impossible to overlook mandatory and supplementary insurance, the length of the loan , and other incentives for taking out a loan, which can often hide some pleasant surprises. And to avoid regretting your decision, here are some tips for financing your car (new or used) with peace of mind.
Watch out for the three little words: “from”…
To take advantage of this offer, you’ll need to be able to repay €383 per month! Suffice it to say, this offer is designed to attract interest with a rate that ultimately isn’t very affordable. Few people can finance their car for just one year.
Loan term: is there an ideal term?
Indeed, borrowing means committing to repaying. That’s why you should carefully assess your financing capacity. The threshold commonly considered by lending institutions is 33% of your total monthly budget.
In any case, keep in mind that the longer the repayment term, the lower the monthly payment, but the higher the APR will be. And conversely, the shorter the term, the lower the APR will be. But don’t be overconfident and opt for an average term of 24 to 42 months maximum (the term from which the vehicle begins to depreciate significantly).
A well-insured loan, reassuring options
During this period, you will need to take out insurance to cover your loan. Don’t hesitate to add the usual mandatory “death” and “disability” insurance policies to “theft” and “accident” options. This precaution will be useful so you don’t have to pay off the loan for a vehicle you can no longer use.
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