After seeing the different car models and brands at the Motor Show, thousands of families and companies decide every year to buy a new car for their families, their respective staff. Payment for this new car can be made by immediate cash payment or by financing a new car. With the high cost of a car, more and more people are starting to borrow money for a new car again, so the purchase price is spread over the life of the car. However, it is not possible to buy a new car without a prior simulation of the interest on the car loan. This is how to compare car credit offers.
Cars are getting more and more expensive
Tesla or a Jaguar iPaceBuying a new car is becoming more and more expensive, especially if you are moving towards less polluting electric cars like a Tesla or a Jaguar iPace. With budgets between €60,000 and €100,000, the use of credit is often unavoidable. It is therefore necessary to compare cars, their performance, prices and operating costs. But since you use credit, also consider the elements attached to it.
Difference between a new car loan and a used car loan
A car loan for a new car is different from a used car loan because of the age of the car. In their general or special car loan conditions, all lenders set a maximum age limit for the car. Depending on whether the car dates from 2011 or 2016, for example, a different loan agreement, and therefore a different annual percentage rate of charge, will apply. The difference between financing a new car and financing a used car will be limited in practice. Simulations show that the interest rate on a car loan for a new car is lower than that on a used car. Thus, if the same amount of €20,000 were to be invested, it would mean that it would be cheaper to finance a new car than a used one. However, the difference in interest on the car loan is offset by the purchase price of the vehicle. Since the purchase price of a used car is generally lower than that of a new car, the difference in practice is almost negligible. Most interested borrowers will limit themselves to comparing the interest rate on the car loan. However, analyzing quotes for automotive financing is not limited to comparing annual percentage cost rates.
Elements to consider when comparing auto credits
- Minimum and maximum amount spent.
These two amounts symbolize the minimum amount to be borrowed, as well as the maximum amount that can be borrowed through the new car loan. A car loan for a new car is considered as an “instalment loan”, so the credit is subject to the legal provisions applicable to instalment loans. The legislator sets a maximum repayment period for instalment loans based on the amount borrowed. The Economic Law Code stipulates, for example, that a loan that finances a new car can be spread over 60 months at a cost of 15,000 EUR. The Belgian legislator thus wants to prevent families from committing themselves to a loan for too long. Please note that this restriction only applies to consumer credits. A company that wishes to borrow money to finance its company vehicle is not bound by this restriction(s).
- Annual percentage rate of charge.
During a simulation, you naturally want to know, as with any loan, how much the loan costs on an annual basis. The Annual Percentage Rate of Charge (APR) provides a clear overview of the total loan price. For example, most lenders will clearly indicate that 300 or 350 euros must be repaid monthly for the car financing of the new car but will not mention that an interest rate of 2.10 or 2.30% will be applied. The APR is a percentage that includes all loan costs, such as interest on the car loan, as well as additional (hidden) costs.