What is a car credit or auto loan?
Car credit is a financing option that allows you to purchase a car by taking out a loan from a bank or financial institution. Unlike car leasing, where you are not the owner of the car during the contract period and return the vehicle at the end of the lease term (unless you make an offer to purchase it), car credit enables you to immediately take ownership of the car and keep it after the loan is fully repaid.
How Does Car Credit Work?
When you apply for car credit, the lender assesses your financial situation, including your income, credit score, and existing debts. Based on this evaluation, they offer a loan with an interest rate. You then repay the loan in monthly instalments over a set period, typically between 6 and 84 months. The shorter the loan term, the higher the monthly payments, but the less interest you pay overall.
Benefits of Car Credit
- Full Ownership: You own the car outright throughout the credit period.
- Flexible Loan Terms: You can choose a repayment period that suits your budget.
- No Mileage Limits: Unlike leasing, you can drive as much as you want without penalties.
- Option of Early Repayment: Unlike leasing, you can pay off the entire loan at any time to exit the private credit agreement.
Things to Consider
- Interest Rates: The total cost of your loan depends on the interest rate and loan term.
- Creditworthiness: As with leasing, your credit score determines whether you are eligible or not. Running debt-enforcements are an immediate drop-out criteria for your application.
- Pay-out: You will not receive the sum in cash (like with cash private credits). Instead, the bank will buy the car in your name with the credit and your downpayment.
- Down Payment: Some lenders require a down payment, reducing the loan amount.
Car credit is a great option for those who want long-term ownership, financial flexibility, and complete freedom in what and how much they drive. However, it's important to compare offers to find the best financing deal.