Are you looking for the cheapest new car loan?
Buying a new car represents a cost, which is not the least. So there is the question of financing. You have three distinct options: picking in your savings and paying cash for your new acquisition, hiring a dealer and opting for the funding with 0% credit, or finding the cheapest new car loan from a financial institution. Each of these options may be interesting, but also has advantages and disadvantages. TopCompare.be explains here the ins and outs of the different financing options for your new vehicle.
How does 0% credit work?
Only a few of us can afford to pay cash for a new car, and many are reluctant to take a loan, which is a debt. It is therefore increasingly common for dealers to offer car loans at lower interest rates than those offered by banks, sometimes a 0% car loan. This seems a priori more interesting to buy a car, but is it? Also, is it possible to make an interest-free car purchase in Belgium?
At first glance, a “0% credit” at a dealership seems the cheapest option as you will only have to pay back the principal, without any additional interest charges. Unfortunately, free loans do not exist. In the majority of cases, this is a personal loan where you will be required to repay the principal within a maximum period of 5 years (depending on the dealer). If you are unable to repay this loan before the agreed due date, the remaining balance interest will be higher. You will not be able to borrow for free beyond five years.
Should I choose a 0% credit or the cheapest new car loan offered by banks?
The 0% credit also contains two hidden “costs” that most people do not know. First, the dealer will not give you a discount on the purchase price of the vehicle, while you can negotiate a discount if you do not borrow at the dealership. Also, if you want the dealer to take over your old car to partially finance the new one, make sure its value is not underestimated. Besides, the 0% credit only works in connection with the purchase of a new vehicle. So, if this is an opportunity that has hit you in the eye, it will take into consideration a used car loan.
On the other hand, in the context of a traditional car loan, financial institutions must be transparent concerning the costs incumbent on the beneficiary. Thus, the latter is informed of the applicable interest rate (which is also calculated on a fixed basis and is not subject to variations), as well as application fees. The addition of these two costs forms what is known as the APEG (Global Annual Effective Rate). By taking advantage of seasonal offers, for example here at the Auto Show, it is possible to find the cheapest new car loan all year round. For instance, in early 2018, Beobank offered a record interest rate of less than 1% for new vehicles, a 0.65% APR!
What are the advantages and disadvantages of these two options?
Thanks to its attractive rates, the outstanding car loan is the most accepted way to finance his car. You will repay monthly payments that include interest. Since the car serves as collateral in case of default, the rates of these loans are low, see close to 0% credit. Nevertheless, you can negotiate the payment at the dealerships to buy a car. In the majority of cases, this concerns an installment loan where you will be obliged to repay the principal monthly, within a maximum period of 60 months.
Classic car loan
In the majority of cases, you will be able to borrow more than 100% of the purchase price
You can borrow for a more extended period (up to 120 months)
A most advantageous method of financing (sometimes up to 0%)
Loan at the dealership
Higher interest rate
The penalty in case of early repayment
You will only be able to borrow on a shorter term (up to 60 months)
You will be unable to borrow more than 100% of the purchase price
You will have to pay penalties in case of early repayment
As mentioned in the table above, the two methods to buy a car have advantages and disadvantages. To obtain one of these two loans, your name can not appear on the blacklist of the Central Credit for Individuals. Also, you will receive a penalty for early repayment under both types of loans.
As part of an outstanding auto loan from a bank, you can borrow more than 100% of the purchase price to cover insurance and other costs. This is not possible at a dealership. The main trap when applying for a loan from an authorized reseller, however, remains the “hidden” costs.
What are the differences between 0% credit and a traditional loan?
Under a 0% credit, you only refund the amount corresponding to the purchase price of the vehicle. On the other hand, if you are unable to repay the amount within the time required by the dealers (usually five years max.), You will not be eligible for this type of loan. The term of a 0% credit is shorter and could cost you a discount on the purchase price or an undervaluation for the recovery of your old car. This is not the case of the car loan offered by the banks, which allows you a certain flexibility vis-à-vis monthly payments and repayment terms, and therefore a certain margin of negotiation.
A 0% auto financing, which you have to pay back within 48 months, can cost you up to € 3,200 more than a conventional car loan – you can usually only borrow at 0% out of 5 maximum years. You will find three different situations, from the least advantageous to the most advantageous for the outstanding car loan and the 0% auto loan. We assume that the favorite Volkswagen Golf Sport, whose total price is € 25,000 (including VAT), is financed by a loan.
Concrete example :
In a realistic scenario, buying a new car with a 0% auto loan will cost you 25,250 € if you can negotiate a 5% discount on the purchase price and that your old car is undervalued by 12, 5%. While the same car will cost you around 22,586 € with a classic car loan. The 0% credit will cost you € 2,900 more. Even if you do not have an old car, the 0% financing will cost you € 1,400 more. If you are unable to get a discount on the purchase price and your old car is undervalued by 20%, you will pay € 3,200 more with a 0% loan.
Also, if you are unable to repay the monthly payments before the agreed due date, finding the cheapest new car loan would be a better option. Beyond this period, the monthly payments for a 0% credit will be higher because of the very high-interest rates. On top of that, you probably will not be able to enjoy a discount on the purchase price and a correct estimate of your old car.