Are you deciding to buy a new or used car and you do not have enough funds? Have you heard of different funding options and can’t decide which option is best for you?
Car dealers cooperate with leasing companies, but also with banks, and in many cases, they will offer you financing options from several companies directly in the store.
To make a decision, you need to have at least a basic overview of individual products, as well as the differences between the main forms of financing the purchase of a car, which are credit and leasing.
Consumer loans of banks
- Non-purpose consumer loan
- A special-purpose consumer loan for the purchase of a car
Products of leasing companies
- Consumer credit and car sale in installments
Products of other financial institutions and non – banking entities
- Short – term non – bank loans
Consumer loans of banks
- The advantage of this type of loan is fast processing (in standard cases, the application is processed within 24 hours after the submission of all required documents)
- Depending on the purpose, we distinguish:
– Non – purpose consumer loan, where you do not have to prove the purpose of using the funds
– A special-purpose loan, where the use of funds is documented, but you have the option of obtaining, for example, a preferential interest rate
- The maximum loan amount and the interest rate amount (and subsequently also the number of repayments) depend on the result of the evaluation model, which will be developed by a client employee at the branch and determine your creditworthiness (approximately the interest rate ranges from 8% to 14%)
- In the case of a guarantee (third party or real estate), you can achieve an interest rate lower by a few percents, but the loan settlement process will be extended (in the case of securing a real estate loan, an expert opinion on the value of the property is required)
- Typical maturities of special-purpose consumer loans of unsecured real estate are up to 5 years, consumer loans secured by real estate (American mortgage) are usually up to 30 years
- Unlike a loan, in the case of leasing, as a client of a leasing company, you use the car for the duration of the leasing contract. You pay regular installments, but this item is not owned by you but owned by the leasing company. You become the owner of the car only after the end of the leasing period (in the case of so-called financial leasing)
- Leasing equipment is usually faster than processing a loan, you can often conclude a contract directly with the seller
- In the case of leasing, you can also achieve a lower purchase price of the vehicle thanks to agreements between leasing companies and used cars and vehicle dealers.
- Thanks to volume discounts from leasing companies, you can get discounted insurance rates for compulsory contractual insurance or accident insurance
- Leasing is usually a more accessible form of financing – in principle, it does not require a guarantor or other guarantees other than the binding of accident insurance, because for the duration of the lease the owner of the vehicle is the leasing company
- In essence, the cost of leasing and a special-purpose consumer loan for a car is approximately the same
- However, leasing is usually cheaper than an unsecured non-purpose consumer loan at a bank. An unsecured loan has a higher interest rate of 5% pa and more percent compared to a secured loan.
- However, if you decide to finance the purchase of a car with a consumer loan secured by real estate, then such a consumer loan is usually cheaper than leasing (consumer loans secured by real estate – the so-called American mortgage – have an interest rate of 4.8% pa).
- Unlike a consumer loan at a bank, however, you also need your own funds – usually in the amount of 20% of the purchase price of the car.
- The condition of the leasing contract is the insurance of the vehicle against accidents and theft
- In case of theft or damage, the leasing company will assert its claims first and you can only claim the damage subsequently. You do not have to get back everything you have already paid for (it depends on your insurance contract). This is because, by default, the insurance is foreclosed in favor of the leasing company.
Products of non-banking financial institutions
Those interested in non-purpose funds can also obtain money through loans from non-banking entities, ie companies without a banking license. They are characterized by milder approval conditions such as loans from banks, but on the other hand, they are known in