Few consumers can pay for a car in cash. In almost all cases, a car loan is due as collateral. The car loan is one of the most approved loans in Germany. The loan with a car as security is then secured with the Kfz letter. For this reason, banks provide cheap auto loans. Financing at the dealer should also be checked.
Most of the cars sold in Germany are financed. The branch banks, the dealer banks and also online banks offer this financing, sometimes with the very best conditions. In the case of a loan with a car as security, the bank has the security of the car requested and the deposit of the vehicle letter. Today, the Kfz letter is named Part II of the registration certificate. The Kfz letter provides information about who owns the car, and the car may not be sold during the credit period; the bank is then the owner of the car.
The car loan as collateral is then a dedicated loan. But the auto bank can also offer the best conditions, whereby it can be said that a loan for a car has better conditions than a conventional loan. The lower the bank assesses credit risk, the better the interest rate will be.
The decision to finance the car through the car bank is often rewarded with very low interest rates. There are various forms of financing at the auto bank. There is the financing with the final installment financing, the three-way financing and the classic financing as installment loan. The advantage of a loan with final installment financing is that only very low installments are paid during the term; at the end of the term there is the final installment, which is then often paid with another loan.
This financing can be advantageous if the car buyer expects a larger sum after or during the loan term, which would pay the final installment in full. Life insurance can often be taken out during the term of the loan, as is also the case with civil servant loans. The customer then pays the insurance premiums at the low rates. After the term has expired, the insurance and then cover the complete final installment. To what extent this pays off for the customer has to decide.
The same scenario arises with three-way financing, only a down payment is made here and at the end of the term there is also the final installment. If the customer opts for so-called balloon financing, he pays his installments and at the end the final installment, but the car remains the property of the buyer. However, many customers cannot pay the final financing with high installments. Then there would be the possibility to return the car. The final installment would then be paid and the customer could buy another car.
If the customer would prefer to take out a special-rate installment loan from his house bank or a direct bank, he has the advantage that he could act as a cash payer at the retailer. It would not only be the discounts or price reductions that he could get out with a cash payment, but he could also look for a model of his choice and would not be bound by the dealer’s offers. In contrast to the normal installment loan, an earmarked installment loan could have an interest rate of up to 4% lower. However, the motor vehicle letter usually has to be deposited, and some banks are also satisfied with the assignment as security.
The customer should also agree to the deposit of the vehicle letter, otherwise the bank could refuse the loan by car as collateral, especially if no other collateral can be mentioned. The bank is therefore safe, because if there is a loan default, the bank can sell the car as collateral. However, only if the car has so much value that it covers the loan amount.
For example, there is no credit with a car as security if the customer buys a used car that does not represent a high value compared to the loan amount. It is not wrong to secure the credit against unemployment or disability with a residual debt insurance. However, it is important to take a close look here, because these insurance companies have pitfalls with which they can avoid payment in the event of damage.
For example, unemployment is only paid if the insurance runs for a certain period of time and some illnesses are excluded in the case of disability. Ultimately, whether a residual debt insurance pays off depends on the customer’s economic situation.
The car buyer can therefore take out a normal installment loan or an on-demand loan from a bank. These are not earmarked and are freely available. The advantage, the Kfz letter stays with the customer and the car belongs to him, he can also sell it when he wants. Often, however, other collateral is required for large amounts of credit.
The call credit, actually not a well-known form of credit, offers the customer a car loan as security that has no fixed term and thus guarantees flexible repayments. The call credit, like the overdraft facility, is only cheaper and is credited to an account by the banks after application. The maximum amount is 25,000 USD that customers can freely dispose of. The repayment makes up 2% of the loan amount used.
A credit comparison can also be used for the call credit. If a cheap bank is found, the loan application can also be made directly here. Of course, the creditworthiness must be impeccable as well as the Credit Bureau not debited.
The special repayments are very important, especially for loans with cars as collateral. The financial situation of the customer can always change positively during the term of the loan and the loan could be redeemed prematurely or at least partially. There will be no prepayment penalty if special repayments have been noted.
There are also one or two installments deferred. There is always a financial bottleneck that could be bridged with one or two installments.
The bad Credit Bureau
Of course, the creditworthiness of the customer is extensively checked on a loan. If negative entries are noted in the Credit Bureau, a loan could be refused. If it is absolutely necessary to have a car, the Credit Bureau-free loans could be considered. However, these loans are limited in amount. There are loans up to a maximum of 7,500 USD, whereby this loan must have an impeccable credit rating, namely a high income.