Mistake # 1: choose the wrong funding
There are four ways to buy a new vehicle:
The cash payment puts the buyer in a much better negotiating position. This is because the car dealer usually makes concessions on financing from the associated credit company. However, this is less relevant in times of low interest rates. Discounts can often be obtained here.
Special equipment, in particular, is often much cheaper due to cash payments. The reason for this is that many financing offers from the car dealer are often linked to specific equipment.
That is why the cash payment can also be worthwhile if a loan has to be taken out from the house bank. The bargaining room increases when buying cash and loan conditions can improve if you compare several offers.
Conventional vehicle financing usually requires a down payment, but is then paid off using monthly installments. This ensures that spending remains calculable over a longer period of time and that car buyers only have problems with repayment if their financial situation deteriorates radically.
For balloon financing, a down payment is made first. This is followed by relatively low monthly rates. After the installment payment has expired, the remaining amount is due in one go. Many consumers underestimate the final rate, which can be up to half of the vehicle’s value, quite considerably.
If you cannot pay the last installment, you must either return the vehicle or choose follow-up financing, which usually does not offer particularly good conditions.
Leasing is particularly interesting for companies due to the tax advantages. Individuals can also benefit if they value the latest models. Depending on the down payment, the monthly leasing rate is often lower than the repayment rates for a loan.
However, here too a down payment is due at the beginning, which can amount to up to a third of the vehicle value. Leasing contracts also make it possible to purchase the car at the end of the contract, which means that the leasing is more like balloon financing.
In addition, a closing rate is usually due, which depends on the condition of the vehicle. Leasing can therefore pose a financial risk if dealers assess the residual value based on signs of use far below the originally agreed amount.
What financing for the vehicle?
Basically, cash is the best option, since loans should only be taken out when it is really necessary. The majority of consumers still use vehicle loans. In order not to pay too much for a vehicle loan, future borrowers should in any case compare different offers and not just rely on the dealer.
Calculate in advance which monthly amount is available for the payment and choose financing that is as regular as possible! If you expect to be able to redeem the loan before the term, negotiate favorable terms. This protects you from suddenly having to raise a large amount, as is necessary with balloon financing.