Personal vehicle is very convenient and comfortable. In addition, there are often situations when a personal machine is simply necessary for business or work. Unfortunately, the economic crisis makes its own adjustments to our financial realities and our own capabilities are often not enough to cover all the costs of purchasing a vehicle. Consequently, we have to look for where to borrow money. Not everyone has good friends or relatives who can help in this matter. Other property to sell for the sake of the car is also not desirable, even if it is.
In this case, a good option seems to get a loan from a bank to buy a car. Is it worth taking a car loan? Or consider an alternative? To answer these questions, it is necessary to determine its main advantages and disadvantages in various situations.
The essence of the loan to buy a vehicle
Unlike a consumer loan, this type of loan is targeted. In fact, the bank pays the seller the cost of the car, after which you reimburse it to the financial institution through a series of regular payments. Additionally, the service of providing a loan in the form of monthly interest is paid. There are two main payment schemes: annuity and differentiated. In the first case, the amounts are the same each time. In the second – the payments are arranged in descending order, and their main part is initially interest.
To obtain a loan you will need to provide the following documents:
- Application in the prescribed form for a loan.
- Application form of the borrower.
- Original of your passport.
- Help 2-NDFL.
- Personal workbook.
A package of papers is quite small and easy to assemble. With this problem definitely should not arise. Is it profitable to take a car loan? What can we expect in the end and what nuances to pay attention to? Consider the main pros and cons of this type of bank loan.
The main advantages of the loan
A machine is often not only a necessity, but also a necessity. In this case, the possibility of not waiting for months or years to accumulate the necessary savings is a pretty good prospect. Interest rates on such a loan are lower than on the consumer, and registration takes much less time. In general, banks are very loyal in terms of providing such loans, and in the absence of a negative credit history, the likelihood of failure is minimal. Also, the initial payment is usually from 10 to 30% of the amount, and only sometimes more funds are required.
The main drawbacks of the loan
Unfortunately, dividing the cost of a car into parts and paying the sum over a long period has its price. The following negative factors are present:
- Due to the long crediting time, the total overpayment will be at least 50% of the amount. Usually it is 100, or even all 200%.
- Mandatory need for insurance CSG, which also portends considerable expenses.
- Until the end of the loan term, the car will have the status of collateral for the loan.
- Possibility of hidden payments in the contract and early repayment fees.
- After repayment of the loan, the cost of the car will be significantly lower than the original.
- Possible risks in case of late payment of the loan. In this case, there is not only the risk of losing the car, but also to remain a proper financial institution.
- The repayment scheme usually provides that initially interest is paid for the most part, not the loan body.
A contract with a bank often provides for CSG insurance, and you may also need an individual life and health insurance policy. The latter is not always required. It already depends on the chosen bank.
In the case of hull insurance, you get a guarantee of indemnification in case of an accident. This is beneficial to both the borrower and the bank. The financial institution will receive from the policy another guarantee of a full refund on the loan. True, there are nuances here, because the contract with the insurance company covers only certain types of traffic accidents. If there is a situation that does not fall into the categories specified in the document, you should not count on payments. The cost of the policy can vary depending on the car and reach 10% of its price. Note that there is an opportunity to give up CSG, but interest rates in this situation will be much higher. In addition, you will not have any guarantees in case of possible accidents and other incidents.
Personal life and health risk insurance is also often prescribed in car loan contracts. This is not so critical for banks as with a policy for vehicles, but it would still entail an increase in interest rates in case of refusal. It is much smaller than in the case of hull insurance, but will also be noticeable.
When the loan will be justified
Given all of the above, it’s possible to say whether to take a car loan, only by understanding the specific terms of the contract. By common criteria, the answer tends to negative. Indeed, there are much more stop factors than positive points, and some of the credit conditions can pose serious problems.
If you still need a car, you should follow these rules:
- Choose the most economical option. It is very important that the vehicle is comfortable and reliable, but considering the cost of interest and a long loan period, it is simply pointless to overpay for the brand and status.
- Carefully study the conditions of the loan. It requires a thorough understanding of such points as the repayment scheme, the presence of hidden payments, the commission for early repayment and possible penalties for non-compliance with the terms of the contract.
- Contact a reliable financial institution with a good reputation in the market.
- Make the highest possible down payment. The smaller the loan body, the easier it will be to repay regular payments.
- If there are opportunities and no fees, try to repay the loan ahead of time.
The bottom line
And yet car loans – is it profitable? In most cases, definitely not. The only one here who always wins is the bank. A long term loan and a considerable percentage provide a profit of up to 200%, which is approximately equal to 40% per annum. The loan is secured by the pledge of the car, your other property or financial responsibility of the guarantors, respectively, the risk of non-return tends to zero. Finally, hidden fees and payments generate additional income.
For you, the alignment will be as follows:
- First, the total overpayment will be from half to twice the size of the original amount. For example, for 1 million rubles it will be 500 thousand and 2 million, respectively.
- Secondly, the presence of compulsory insurance CSG, which implies additional costs every year. True, there are pluses. In the event of an accident, the amount of damage will be reimbursed to you.
- Thirdly, if there is a delay in payment, penalties cannot be avoided. And in the event of complete insolvency, you risk losing not only the vehicle, but also to pay at the expense of other property.
- Finally, possible hidden fees and commissions can significantly impair life by adding unexpected expenses to regular payments.
How justified is buying a car on credit, whether it is worth taking an expensive car, which bank to choose – all these questions will in any case have to find your individual answer. The only thing is to carefully weigh all the above “for” and “against” before you make a final decision.