Used car loan – is it possible? Guide
Many consumers prefer to comprehensively prepare for buying a car. After all, this is an expense that requires not only longer and deeper searches, but also greater financial outlays. Sometimes, gathering the full amount, even with used cars, is a problem. Then you should consider a loan for a used car. What is worth knowing about him? See bberger.net of critique.
The needs related to financial resources are very diverse, to which the market of related services tries to respond in a very clever way. What to choose what people interested in non-bank services (loans for various purposes) and classic banks have to choose. These, realizing that not every consumer turns to the bank to set up an account or get a loan for an apartment, are also increasingly emphasizing the presence of other dedicated financial products in their offers. People seeking ways to finance the purchase of a car are convinced of this.
New and used cars – what is the strength of the secondary market?
Nothing rare in bank offers today is the possibility of taking a car loan. Just next to leasing and long-term rental, it is one of the often used ways to buy a vehicle. However, it cannot be denied that this applies to new cars bought directly from the factory through the local dealership of a given manufacturer. In the case of vehicles from the secondary market, you can hear more often about purchases for so-called cash.
Seemingly, this is not surprising. Of course, the group of supporters of new cars has its strong arguments. You don’t buy a pig in a poke, you buy something new, with a guarantee and “not passed”. The arguments of second-hand buyers are, however, equally convincing. Used cars are primarily cheaper, which means they are within the reach of a much wider range of consumers. At a time when the cheapest new car on the Polish market (Dacia Sandero) costs less than 30 thousand USD 1, already for half this amount on the secondary market you can choose from thousands of vehicle offers of different ages, sizes, for various purposes and in different condition – even the very satisfactory one.
Consumers also see the secondary market as more attractive when they have more money. Amounts that in today’s reality allow you to buy at most a well-equipped city car or a compact car in a cheaper version (e.g. $ 60,000), allow for used cars to choose from large, luxury and well-equipped cars. Therefore, economic coercion does not always work (lack of funds for a new car), and a more cool calculation – pay the same for large and comfortable used, or small and weaker, but new?
Used car loan – is it possible?
Citing the example of new cars for a moment, it is worth quoting what buying a car looks like in the conditions there. These services are so popular that many car manufacturers have set up their own banks for this purpose, which deal with cooperation with dealerships and provide financing for the purchase of new cars. A good example here is Toyota, Fiat or Volkswagen – one of the most popular car brands in Poland, which sell many of their vehicles with the help of loans in banks with the same name as the concern (Toyota Bank, FCA Bank or Volkswagen Bank). Of course, there are also ordinary commercial banks.
In the case of second-hand cars, a potential problem arises – the vehicle comes from a different owner or commission, so is credit possible? Yes, but there are a lot of restrictions. The first, popular way to finance the purchase of a used vehicle is the services provided by selected car dealerships. They offer the option of purchasing the vehicle in installments, which is worth treating with reserve and carefully check whether it is associated with an excess of additional costs (e.g. interest). It is also worth checking to which contract entity the given car dealership cooperates.
However, if we are talking about classic loans for a used vehicle, then you have to be aware of very embarrassing restrictions. They usually concern the age of the car, specifying the minimum value above which the consumer will likely be refused. It can be e.g. 10 years and no more (i.e. currently cars from 2009 and newer) or 16 years or more (currently vehicles from a maximum of 2003). It is worth noting that not every bank applies age restrictions!
Used car loan – who offers it?
The financial market offer in the case of cash loans for used vehicles does exist, although you must be aware of the restrictions. This type of financial products can be obtained in a relatively small number of entities. It is a consolation here that although the supply of offers is narrow, at least there are only large, safe and proven banks with an established market position.
What is worth remembering when choosing an offer?
Analyzing the offers cited above with examples of the special features of the offers (as of July 12, 2019), it is worth summarizing what parameters each customer applying for a used car loan should look at.
- It is worth paying attention to the amount of nominal interest rate and interest rate. The larger, the more the bank earns on the loan and, as a result, we pay back more.
- We also recommend checking whether the bank requires insurance and if so, how much does it increase the additional cost of the loan.
- Let’s check the maximum permissible age of the car and, if necessary, its total weight. In the latter aspect, it may limit the offer to passenger cars only.
- Let’s look at the maximum loan period. The longer it is, the greater the chance of spreading the commitment into attractive installments.
- Let’s check if own contribution is required. If so, check the minimum amount that the consumer must pay.
Used car loan collateral – what are the main features?
A used car loan, even if it concerns a vehicle of a relatively lower value than the average car from the showroom, is still based, however, on financing the purchase of rather expensive property. Therefore, it is not surprising that the majority of banks granting such credit may require the consumer to provide or purchase additional collateral, which constitutes the bank’s compliance with basic security measures in the event of loss of proceeds from subsequent installments of the liability. In the end, every financial market player must take into account this risk.
What types of security can be distinguished?
- Making own contribution. This is when the consumer pays the loan amount that is a percentage of the vehicle’s value, e.g. 10% of its value.
- Partial appropriation. In other words, the bank that grants the loan becomes half the owner of the vehicle and this fact is noted on the registration certificate. This provides security in the event that the consumer wants to sell a credited car – which is impossible in many cases.
- Assignment of AC policy rights. This is connected with the aforementioned transfer of ownership and consists in transferring funds from insurance in the event of, for example, an accident or theft directly to the bank’s account, and not to the private account of the co-owner.
- Registered pledge. A used vehicle, the purchase of which was financed by a bank loan, is entered in a special register of the District Court. It is a collateral in case the consumer stops paying the loan. The bank then takes over the car and can sell it as compensation for the losses it incurs.
Used car loan – worth it or not worth it?
To sum up today’s guide, it is worth considering at the end whether it is worth considering credit for a car from the secondary market at all. First of all – when looking for the answer to this question, one should seriously consider what characteristics our case presents. If the car belongs to the newer ones (e.g. 6-9-year-old) and we prefer or do not want to spend the entire sum on its purchase once – it is worth splitting this expense for longer with the help of a loan. As cited above, there are several noteworthy offers from proven banks that may prove to be a noteworthy convenience.
However, it is always worth considering the other factors that accompany loan applications. Finally, banks require the consumer not only a certain age of the vehicle, but also appropriate security. Sometimes it may turn out that due to, for example, insufficient earnings, the bank will require a third party guarantee or promissory note or will refuse to grant a loan at all. A used car loan may not be worth the attention in these situations.
- If the car is too old (e.g. more than 17 years old).
- When we get too low income (the need to generate additional security and complicate the entire process with further formalities).
- When the car is too low.
- If the consumer has an uncertain future situation, e.g. a fixed-term contract or planning to go abroad. Then, the commitment becomes an unnecessary burden restraining financial freedom in the future.