Looking for an affordable car loan online? Know in the first instance that there are various credit formulas to finance the purchase of your new car. We would like to explain the different types of car loans so that you can make your choice well informed.
Types of car loans
Purpose of car financing
In the first instance, it will be important to know what the purpose of the car loan is, in short: what should it be for?
- The purchase of a new car
- The purchase of a second-hand car
- The purchase of a mobile home, motorcycle or caravan
Borrowing for a new car
To buy a car, money is usually also borrowed. A new car is relatively more expensive than a second-hand car so that the loan amount for new cars will also be higher. Through our website, you can easily compare loans for new cars.
Comparing car loans is best done on the basis of the APR that must always be mentioned, that is legally required. The APR is a percentage that includes all the car loan entails: both the interest rate of the car loan and the costs owed to the lender. This allows you as a consumer to easily compare car loans.
If you search online for a car loan, you immediately notice a difference between new cars and used cars. It is clear that the APR of new cars is relatively lower than the APR for used cars.
The difference between both types of loans can be explained by the assumption that new cars have a longer life than second-hand cars. This also reduces the risk that you continue to pay for a car that is otherwise no longer in your possession.
Borrowing for a used car
Second-hand cars are often cheaper than new cars, but they assume a smaller remaining lifespan of the car. As a result, the loan period will often be shorter than with car financing for a new car. To compensate for this, a financial institution will apply higher interest rates.
Lenders regard a car as second-hand when the car is older than 2 years (with some lenders 3 years). The age of the car you wish to buy has certainly an influence on the interest rate of a car loan.
To save as much as possible on a car loan, it is often interesting to pay the highest possible advance. This also reduces the amount you have to borrow, and you pay less interest.
Borrow for a mobile home, motorcycle or caravan
Borrowing for a caravan or motorcycle will usually take place under the same conditions as a car loan. In principle, a car loan can also be used for the purchase of an engine, caravan, mobile home, and even electric bicycles.
Good to know because you can also use our tables that compare car loans, for the purchase of a new mobile home or caravan.
Car loan credit formulas
When you know that in most cases money is borrowed for the purchase of a car, then we can conclude that car loans are very popular formulas. The consequence of this is that you have various options to finance the purchase of your car.
- Loans on installments
- Car loans at 110% or 120%
- Balloon credits Loans without interest (0% interest)
- Sale on payment
Car loan: Loans on installments
You may already have heard about the personal loan. The term used for this is the loan on payment, but the personal loan is usually better known in the vernacular. Every car loan that a lender offers will fall under the installment loan, but what does that mean?
A loan on installments is a form of borrowing money in which everything is recorded in advance: both the loan amount, the repayment term and the monthly repayment are known in advance. So you never have to count on unpleasant surprises during the term of the loan.
Car loans at 110% or 120%
It is often possible to borrow more than the purchase price of your car. At Record Bank, for example, that is 110% of the purchase price, at Beobank it is possible to borrow up to 120% of the purchase price.
By borrowing more money than the purchase price of the car, you can also finance the first costs of purchase: just think of the costs of an omnium insurance or the tax on entry into service (BIV).
It is certainly handy, but also take into account that you will borrow more, and will have to pay more. It influences the cost of your car loan so that you are cheaper at first by not lending extra for this.
Balloon credits (car loan with residual value)
A balloon credit is used under various names: the loan with residual value, a loan with lower monthly repayments, balloon loan or balloon credit.
The use of a ballooning credit is another option of borrowing money for the purchase of your car. In addition to financing cars, it is used slightly more frequently to make investments.
The purpose of a balloon loan is to keep the monthly costs as low as possible. In other words, you will have to make monthly payments, but these will be lower than a traditional car loan. On the other hand, you do have to repay the remaining amount at the end of the contract.
More concretely, in the end you have the choice:
- To fully repay the residual value
- To sell the car and buy a new car
- To take out a new loan to finance the residual value
You can find a balloon loan from various lenders and major banks. Examples of this are:
- BNP Paribas Fortis
- Record Bank
Whether or not a ballooning credit is an interesting formula, we keep aside. It is, however, the case that you have to take into account a sharply decreasing value of your car, while at the end of the term you have to repay a large amount of the remainder. That is why this loan formula focuses better on investments that yield a return in the long term, a car does not.
You should also take into account the provisions in the contract: for example, a limit can be imposed on the number of kilometers driven. More information about balloon credits and the respective advantages and disadvantages of a balloon loan can be found in this article.
Loans without interest (0% interest)
Borrowing without paying interest, is that possible? It always keeps a watchful eye when something is offered for free, and therefore also for car loans offered with a 0% JKP. A car loan to 0% APR, therefore, implies that you would not pay any file costs. What does the lender live for?
However, it may be possible for you to be offered a loan at 0% by the dealer from whom you will purchase the car. Is that an attractive offer?
Before talking to car dealers about car financing, it is important that the price of the car is recorded. Often, additional discounts or purchase premiums are no longer possible (or less interesting) when you consider the offer of a car loan at 0%.
Always pay attention to the small print if you see an offer that looks too good, often the provider tries to keep their profit margin in a different way. Always negotiate in advance about the price and additional premiums/discounts. Do this if necessary with several car sellers.
Sale on payment
We speak of an installment sale when you repurchase a car in monthly installments. The balloon credit can therefore also be covered here. Often it is the traders who provide an installment sale.
Characteristic of an installment sale is that you immediately become the owner of the car. The duration is predetermined and in order to be able to visualize the costs, the JKP formula is also used. This way you can also estimate the total cost price and compare it with car lending from lenders.
An installment sale is most common with goods with a limited value. The period within which the reimbursement must be made is therefore relatively small (1 year). Cars do not really belong under this heading and you will usually be asked to pay in advance. Keep in mind that advances in cash of more than 3,000 euros are no longer allowed.
Leasing is also a form of installment sales. The calculation is different, however, and is more complex because of the fact that car insurance and maintenance costs can also be included in the total package.