General terms and conditions for reading this section
If one wants to get the the best loan and optimize the financing of a car's purchase, one needs to gather a number of essential informations in order to allow an optimal choice.
One must get acquainted with the different types of loans to avoid a poor choice.
Long-term car rental, most often chosen by companies, involves renting a vehicle, with insurance potentially included (often at an attractive rate), for a fixed period of time and a preset mileage (penalty to be paid in case of excess mileage). You do not own the vehicle, the rental cost can be quite expensive (get quotes from competitors) and all the vehicle's repairs must be paid by the lessee at the end of the contract.
Lease with an option to buy, usually chosen by private persons, involves using a vehicle for a set period of time within a mileage limit (penalty to be paid in case of excess mileage). The first down payment is often quite high when compared to the following payments. At the end of the contract, the lessee can purchase the vehicle (get a loan if necessary) if the resale value listed in the contract matches the average value of this type of vehicle.
A balloon loan, often offered to private persons purchasing a new vehicle, lets the purchaser get immediate ownership of the vehicle by paying very low monthly payments followed by a final large payment. This final "balloon" payment can be so hefty that the purchaser may decide not to pay it, the seller in this scenario being contractually forced to buy the vehicle back. Purchasers need to carefully appraise the real costs involved with this type of contract.
A regular loan, both for companies and private individuals, enables the purchaser to take immediate ownership of the vehicle without any time limit, insurance and maintenance as well as resale costs being paid by the purchaser. Long term loans and low down payments make for higher interest rates. Monthly repayments (of all personal loans) should not exceed 30% of the borrower's monthly income.
A car loan, known as a "crédit affecté" (specific car loan) in France, is a basic loan dedicated to the financing of a car's purchase, its features being listed in the loan contract. This type of loan benefits from the banks, financial and insurance companies' best promotional offers but also and above all from very attractive offers made by car manufacturers' financial institutions working with cars' dealers and distributors.
It is important to remember that each loan application is carefully screened by financial institutions.
Bank account information, pay slips, employment contract, income tax, rent receipts, property taxes (if the purchaser is a property owner), current loans and family situation will be requested whenever applying for a lease or a loan. A collateral guarantee might have also to be provided. Companies will also have to give informations about company registration and statutes, bank accounts and provide their last three CPA certified balance sheets and income statements. This information will be compared with that provided by the Banque de France and other financial information providers. Whenever applying for a loan, one should always give fair and wholly transparent informations but also ask for loan quotes from several financial institutions. If a loan is refused, one should inquire about why it was refused just to make sure that the application was completed correctly with no errors and ask the seller to back up the loan application.
You must compare all the quotes and calculate the actual cost.
Different financial institutions may have different contingencies at any one point while their loan interest rates may also vary. So, it is quite wise to get several quotes whenever applying for a large long-term loan. One should compare the deals offered by its usual bank and insurance company as well as those offered by the car manufacturer, the car dealer and another major financial institution specialized in the car financing market. As soon as one has all the quotes, one should compute the exact cost of the loan by adding up all the monthly payments and the cost of any other extra guarantees, from which one will deduct the vehicle's purchase price. Purchasers can use this simple method in order to appraise the real financing cost of each deal and compare them against one another. Purchasers can also check their calculations is right by asking to each lender to provide this vital information in writing.
In conclusion, by using this step by step approach, one will find that initial uncertainty over which car should be bought is no longer an issue. Indeed, a careful comparison (following a test drive of each car) of the competing vehicles' main features (fuel consumption, trunk capacity, resale value and insurance costs) and of each car's real cost of financing generally leads you to make the right decision with a full knowledge of the decision factors.