Finding the cheapest car loan is not easy because there are so many different factors that determine the price of a loan. First of all there is a difference between the interest rate of the banks and credit brokers. There are also different types of car loans and one must also bear in mind that car dealers sometimes offer promotions when purchasing a new car.
The different car loans
First of all you must be aware that there are different credit formulas. The simplest is probably the installment loan where you pay off the full amount in fixed monthly installments. With this loan you know exactly how much you have to pay each month and how long the loan runs. This type of loan will mainly be offered by banks and credit brokers.
At the car dealerships (but sometimes also at banks) you usually get a variant of the installment sales offered. This is a so-called balloon contract in which the monthly payment is a lot lower than with the other loan forms. At the end of the loan, you still have to cough up a large amount in one go. One can also choose to convert that amount into a new loan or to buy a new car and thus take out a new loan.
These balloon contracts may look attractive at first sight, but they are usually more expensive than the traditional installment loan. People respond mainly to the perception that the consumer will have to pay a lower amount each month, while the total costs are usually higher. If, at the end of the loan, you cannot cough up the large sum and also have to convert that amount into a loan, the costs will be higher than expected. Even if one decides to buy a new car with a corresponding loan, one remains stuck in debt. Balloon contracts mainly play in the lenders’ cards, so don’t decide to sign a contract too quickly. In particular, take your time comparing loans or even negotiating with lenders in order to obtain a cheaper rate.
It is also useful to know that for a second-hand car for more than 3 years you will usually pay a higher interest rate than when purchasing a new car (or a car younger than 3 years).
The Promotions At The Car Dealers
Car dealers often offer promotions that can be interesting to reduce costs. I remember that Opel once gave a 21% discount when purchasing a new car. Occasionally, car dealers also offer car loans at an interest rate of 0%. Sometimes you can also use the benefits offered by the government, such as the discount that was offered in 2011 for the purchase of an environmentally friendly car (meanwhile abolished). These promotions change annually and the best thing you can do is to visit the websites of your favorite car brands and search for “promotions or promotions”.
Always watch out for snakes under the grass. These discounts are sometimes designed in such a way that you have paid more at the end of the ride than with a traditional installment loan. It is always better to take your time and ensure that you understand the loans and promotions well. Also don’t be afraid to keep asking, you have the right to know exactly how much you will have to pay. However, the best advice I can give you is not to take out a loan, but to buy your car with your savings.