Who should I turn to for financing a new vehicle?
Several financial institutions can grant you a loan if you are looking to purchase a new vehicle. You are usually eligible to loan 75 to 80 percent of the car’s value, which means you have to be able to make a down payment, i.e. about 20 percent of what the car is worth.
If you decide to loan money from a bank, the interest rate is usually about 3,5 – 5 %. However as with all loans, you must look out for the eventual arrangement fee. Another cost to look out for is the notification fee, which the bank can charge you for each month for the notification you receive to pay back the loan. Although it may be a small sum each month, it sums up to a larger and unnecessary expense over time, making the loan even more expensive. If possible, pay by direct debit to avoid this fee. It should however be mentioned that not all banks charge this fee.
Some car dealerships can offer loans as well, even if you purchase a used vehicle. As with all loans you must make sure that you’re aware of any additional fees that apply, and therefore look for the effective interest rate when comparing the dealership’s loan with other alternatives. Don’t get deluded by a low interest rate, with all the “hidden” costs included, the effective rate could be more than you think!
Financing a car through a loan breaks down into three groups:
Leasing a vehicle pretty much means that you rent it for a longer period. At the end of that period, a debt remains in the form of residual value, since you’re not paying off the entire value of the car during the loan period. Hence, you should not be tricked by the relatively low monthly cost for the rent, compared to a traditional loan. Although leasing a vehicle has its benefits–included change of tires, service, repair jobs etc–primarily companies benefit from leasing as they often are able to deduct VAT
- Loan for a new car where the car itself serves as a security for the loan
This is what is usually referred to as just a car loan, and in most of these cases you have to make a 20 percent down payment. As the car works as a security for the loan, you are often offered a lower interest rate. However if you are unable to pay back the loan, the car will be sold in order to make this possible.
- Unsecured loan
You can also acquire a loan without any security. Here you are free to spend the loan any way you wish, however the interest rate will most probably be higher than it would be with a loan that has some sort of security tied to it. Despite this, many turn to unsecured loans for financial help. You are not required to make a down payment, and in contrast to regular car loans, no terms apply as to where the car has been purchased from, nor to how old it is.
A few examples of financial institutes that can provide you with a loan include:
- American Express
- BMW Financial Services
- GE Moneybank
- Alphera Financial Services
Please not that all of the above concerns the Swedish market, in terms of where the information has been gathered from and to where it applies.