Many car buyers are not even aware of the risk of debt. Dealers lure with seemingly attractive offers, where the car can be paid off over several years. Many cars are therefore pumped up regardless of their own financial situation and paid off over a long period of time in monthly installments.
Car finance on a pump – a dangerous model
When buying a car, the first question is whether it should be a new car or a used model. If you do not attach great importance to the car as a status symbol or do not drive a lot with it anyway, you can save a lot of money when buying a used one, because the loss in value is immense, especially in the first three to five years.
However, if you absolutely want to buy a specific vehicle model with a precisely defined special equipment, you often cannot avoid ordering a new car. And that can be expensive! There are hardly any models available at a price of 10,000 USD, the average new car in Germany even costs around 25,000 USD.
After the decision for a certain vehicle type has been made, financing is the central aspect when buying a car. Those who have the necessary change and can pay the car in cash not only avoid taking out a loan, but also have good cards with the dealer when negotiating discounts.
The majority of car buyers prefer to take out an installment loan and repay it at a monthly rate over a certain period of time. At this point, most car buyers make mistakes and misjudge their financial situation. Rational considerations are often pushed into the background when the new car is within reach. With some loan models, repayment does not start until months after the purchase, which is why the customer does not have to worry about the monthly charge when buying.
The different types of funding are listed below:
- Cash payment: The customer has the necessary change and can pay for the car directly. So there is no fear of debt and attractive discounts can still be negotiated with the dealer.
- The installment loan: The classic financing model is the installment loan, in which the customer pays a monthly installment over a certain period of time. The financing period is usually between one and six years.
- The three-way financing: With the so-called three-way financing, the contract usually runs between one and four years. After this period, the customer can decide whether to pay off the loan in one fell swoop, continue to finance the car at a monthly rate or return the car to the dealer.
- Leasing: Leasing is a rental model in which the customer pays monthly installments and returns the car after a certain period of time.
- The house bank: Of course, the customer does not have to accept the merchant’s credit model, but can also take out a classic loan with his house bank. Whether this is the better alternative has to be decided on a case-by-case basis.
When buying a car, the customer should not only think about the purchase price. The operating costs must also be taken into account, since they make up a not inconsiderable part of the total costs.
The running cost of a car
The car is so dangerous as a debt trap because the running costs are underestimated. Above all, these include:
- fuel costs
- spare Parts
In addition, the depreciation of the car must also be taken into account. This is included in the purchase price, but should also be considered when calculating the running costs.
The car debt trap can be circumvented relatively easily by not letting the user be tempted by the desire for an expensive car, but thinking rationally and making a decision on this basis. In any case, the expected costs should be calculated realistically in advance. If the financial framework is right, the risk of debt can be reduced to a minimum.