How can I finance a new car?
The purchase of a car, the largest household expenditure after the cost of housing, represents a considerable budget, and it goes without saying that choosing the right financing is important for your wallet. Therefore: which type of financing should you choose?
The moment at which the payment is made comes, of course, after the search for the right car and the negotiations. Many of our fellow countrymen are not able to purchase a car, be it used or new, without some form of financing. To obtain a clearer picture, here is an overview of the main solutions that are available in the market:
1. Term loan
This is the most traditional solution, which is generally proposed by the banks. A term loan is easy: it’s all about the repayment of a fixed amount over a predefined period, either with or without an advance. For a new car, this period is usually set at 4 or 5 years, while the average loan term for a used car is between 3 and 4 years. The amount of the loan can also be higher than the actual price of the car, and it is even possible to include taxes or a set of winter tyres.
2. Sale by instalments
In addition to the traditional loan with instalment credit terms, many manufacturers offer a formula that is called ‘sale by instalments’. A deposit is often required here, usually 15% of the price of the vehicle in question. This type of financing therefore does not cover the full price of the car, and certainly not the taxes. Moreover, certain clauses can enable the credit provider to better protect himself. An example of this is the ownership clause, which stipulates that the credit provider remains the owner of the vehicle until the full repayment of the amount, or at least a certain percentage that has been specified in the contract in advance. On the other hand, the buyer can benefit from a more attractive total Annual Percentage Rate (APR) with this form of financing.
3. Balloon loan
With a balloon loan, the monthly amount to be paid is low, but a large sum of money must be paid at the end of the contract, the so-called ‘balloon’. This type of financing is often preferred by Belgians who regularly change cars. They can usually use the amount obtained from the sale of the vehicle to clear the bill. If you are unable to pay the remaining debt, you will, of course, lose the car.
4. Leasing for individuals
Leasing does not only exist for companies. Nowadays, private individuals can also opt for this form of financing, and it is even becoming more successful every day. The vehicle is considered as ‘rented’, as it were, and remains the property of the leasing company. Only at the end of the contract is it possible to become the owner, after payment of a certain percentage of the catalogue value that was established at the start of the contract. Be aware that the leasing formulas proposed to private individuals are usually of the ‘operational’ type. The advantage of this is the ‘all-inclusive’ aspect: the monthly lease includes taxes, insurance, maintenance, repairs, assistance, tyres, etc., but, of course, without the fuel. Be careful with this type of contract, however: in general, it contains restrictions, with ‘fines’ if they are violated. For example, if the maximum mileage is exceeded.