Car loan – yes, but what?



Buying a car is not a profitable investment because the car quickly loses value over time. Nevertheless, the number of cars sold in the Czech Republic is growing annually. About 50% of buyers handle some form of car loan every year. In the household lending frequency ranking, the car loan is currently second after household equipment loans.

The most common ways of financing the purchase of a new car are consumer car loans and financial leasing. The indisputable advantage of all these options is that there is no significant one-off expenditure. Even with the cheapest car loan, buying a car will ultimately be more expensive than a one-off purchase because the credit company’s profit is included in the price.

Compared to own funds financing, the amount paid for a car when purchasing through any form of car loan is higher (interest payment, account maintenance fees). However, this financial burden is spread over a longer period compared to payment from your own pocket. The record appears in the debtors register.

 

Consumer credit for the car

Consumer ccredit

Consumer loans are negotiated without having to prove the purpose of this loan, the purpose of drawing is not limited, and you can take it for anything. If you buy a car on credit, you will become the owner of the vehicle and you will be listed as the owner in the technical certificate.

From their knowledge of client’s expenses and incomes, banks offer pre-approved loans in their internet banking. For some companies, you can have money on your account within 15 minutes. Banks, however, after applying for a pre-approved loan still check that the client does not have a loan with another institution and possibly reduce the amount borrowed. Do not expect a car loan without checking the debtors register.

You can easily repay this car loan once before the contract expires. If a car is stolen or totally damaged in an accident, this does not mean that you are no longer obliged to repay the car loan, you must continue to meet your obligations to the financial institution that provided you with the money.

 

In consumer credit financing you will need:

  • a valid identity card and age of at least 18 years,
  • second identity document,
  • Czech citizenship, valid Czech telephone number,

regular, sufficient and permanent source of income (beyond probationary and notice periods) – can be from employment, but also from retirement or parental leave.

Foreign nationals need a permanent residence permit, social security number and passport. In addition, they must meet specific conditions which vary from institution to institution.

The maximum interest rate on loans is applied when choosing the lowest possible loan amount. However, it is also influenced by the client’s financial credibility. The interest rate for the duration of the car loan tends to be fixed.

Try your own research to find the best car loan, or give confidence to a consultant who can help you find the best car loan and possibly point out the pitfalls of some terms and conditions.

 

Financial leasing

car loan

Financial leasing is a long-term type of leasing. Throughout the lease, the car is owned by a leasing company (loan provider). As the operator, the credit card is kept in the technical card, ie you. The recipient of the loan is therefore only the lessee of the thing and has the right to use the car. Without power of attorney the user must not operate.

Therefore, in the event of an accident or theft of the vehicle, the operator must immediately contact the Police of the Czech Republic and the relevant insurance company with which it has arranged accident insurance. The advantage of financial leasing for entrepreneurs is that payments are tax deductible expenses.

At the end of the leasing loan (repayment of all regular installments and payment of the car’s residual value), the rented car is redeemed. Early repayment is also possible, but in this case the leasing company will require reimbursement of the costs associated with early repayment.

 

Operating lease

car loan

Do you want to change your car every three years? Or even every year? Operational leasing, sometimes referred to as operating leasing, is a type of leasing that involves short-term leasing. At the end of the lease period, the property is returned to the owner (leasing company). Operational leasing contracts are very variable – they can include assistance services, replacement vehicle for the period of repair, regular vehicle service, tire service including winter tires, fuel cards.

Operational leasing is usually the most expensive of all three options. Also, there are limited mileage to be guarded. Everything is specified in the contract. Each extra kilometer compared to the contract is fined, usually the amount is between 0.6 to 1.8 USD per kilometer. On the other hand, if you do not use the entire mileage, you will get some money back. On average, it is USD 0.4 per kilometer.

 

Alternatives to car loans

car loans

If you want to rent a car without looking at the register of debtors and documenting your income, also look at the very interesting option of car sharing. It can be advantageous for someone who does not need to drive frequently and uses the car only as a crash, or likes to test different vehicles.

Whether you like more of any of these credit options, don’t overestimate your financial options or underestimate the amount of repayments. For every form of car loan, keep in mind that you will have several years of repayment and you may not have the same income all the time. You may then have a problem repaying suddenly.

Check whether your chosen car loan includes liability and accident insurance. For a non-purpose loan, you have to take care of this item yourself and our consultants will be happy to help you choose the right insurance. For a special-purpose loan, the insurance is usually included, if not, the credit company will tell you from which companies it accepts the insurance. Even in this case, the cheapest car loan may not be the best car loan.