Very few consumers can pay for a new car in cash. In this case, banks offer auto loans that are secured with the vehicle-Brief. This is done if the loan seeker does not have sufficient collateral that is necessary for a loan. A car loan as security can then be the solution.
Car credit as security – the prospects
Before banks approve loans, the loan seeker must convince them with collateral. No bank issues a loan if the necessary creditworthiness is not sufficient. With a car loan as security, the bank has the necessary credit security through the vehicle letter of the car. The vehicle letter or what it is called today, registration certificate part II, can be deposited by the customer as security for the loan with the bank. The vehicle-Brief shows who owns the car and that he can take part in public road traffic by car. The customer is not allowed to sell the car during the credit period, since the bank is the owner.
Securing the credit with the car as security is becoming more and more noticeable for customers who have no other security such as a property or a loanable life insurance. However, the loan will only be as high as the value of the car. A new car can also be taken as security if it has already been paid for and is therefore pledged as value. Banks are increasingly accepting this credit protection.
The reasons for a loan are as varied as there are loans. There are people who finance their vacation, buy the technical equipment from it, or also do the necessary renovation of the apartment. These costs cannot always be paid from the current budget, so a loan is applied for. A car loan as security is not only accepted by banks but also by many credit institutions.
However, the car must not be leased, so that it is not the property of the loan seeker and must not be on loan. Usually, only a paid car is granted as security, but the new car is supposed to be bought from the loan with the car as security. Hence the deposit of the motor vehicle letter. The other credit protection of course provides for the paid car. This is the case when the loan is taken out for something else.
Conditions at the bank
Despite the credit protection provided by the car, banks require sufficient creditworthiness. With a car loan as collateral, the loan can also have a low income or even a negative credit rating. The car creates the necessary creditworthiness. But there is still to be considered that the current installments can be paid. What use is the credit protection with a new car if there is a default? The bank has the car as security, but that should only happen if an extreme situation arises.
If the customer suddenly becomes unemployed or becomes seriously ill and has a sickness certificate with reduced sickness benefit for months. In such a situation it is not wrong to pay attention to the necessary special services when taking out a loan. Rate suspensions can make sense, especially if a situation arises as described above. If the customer has an insecure job, the consideration would be whether a residual debt insurance might not make sense.
However, the customer should know that the residual debt insurance is added to the loan amount, making a loan extremely expensive. Then it is important to weigh up the expensive loan or an acceptable security. Just like installment stops, free special repayments should also be possible. The financial situation can always change and the customer could pay part or all of his loan. If the special repayments are not noted in the loan agreement, the bank may charge a so-called prepayment penalty. After all, it amounts to 1% of the remaining loan amount.
As already mentioned, the car loan as security can also be applied for for other purchases or needs. The value of the car then always serves as credit protection. In this case, the vehicle letter will also be handed over to the bank.
The advantage of a bank loan cannot be dismissed out of hand because it can appear as a cash payer at the car dealer and receive good discounts and discounts. He can also choose a car model of his choice and does not have to commit himself to a manufacturer.
Financing at the dealer
Of course, the customer can finance his car through the dealer bank. These car banks are under intense competitive pressure and offer their customers the best interest on car financing. It is not uncommon to advertise with 0% financing. The car bank also offers its customers so-called balloon financing. The customer pays low installments until the end of the loan term and then has to finance the final installment. However, most borrowers then have to borrow again to finance the final installment.
This type of financing is suitable for the customer, who can expect a higher amount of money at the end of the loan term. For example, if a life insurance policy or a savings contract is paid out. However, the customer must also make a down payment. The financing where the final installment will be waived is when the customer leaves the car to the dealer again after the loan term.
The car loan as security can also be paid through a normal installment loan from the car bank. It is then important to consider which loan is cheaper, that of the dealer bank or a bank branch.
If the customer chooses the bank loan, he can use the loan comparison to find a cheap provider. He can submit the loan application directly via the comparison. After sending the necessary credit documents, the loan is approved or not. That depends on the customer’s creditworthiness. But if the car is deposited as security, the customer can hope for a positive loan decision.