Buying a new car is a special experience: you can configure the vehicle in the way that suits you best, the leather still smells intense and there is something new to discover in many places. You can enjoy this wonderful feeling even more intensively if you have organized a favorable new car financing. There are big differences when you are looking for a loan for your new car. How you can proceed and save money, you will learn below.
The new car financing – proceed thoughtfully and exhaust all options
If you are interested in a new car, you will enjoy the full attention of the dealers: they depend on sales and new vehicles bring the highest prices. In the rarest of cases, a car is paid for in cash; in view of the extremely low interest rates that have prevailed for years, more and more car buyers are taking advantage of a new car loan or a favorable leasing contract. However, leasing is primarily a question of commercial use, because with the leasing rates you do not acquire ownership of your car step by step, but may only use it within the agreed framework. The rates are relatively low and are tax deductible for business vehicles, but for private cars it doesn’t matter.
This is where new car financing comes into play: at two-thirds, the share of fully or at least partially financed vehicle purchases in germany is relatively high when leasing and credit on the one hand, and new and used cars on the other, are combined. car manufacturers have also recognized this market for themselves, and it’s not for nothing that they offer their own financial services, which deal in particular with new car financing. You will get an offer immediately if you are interested in a new car. At first glance, this may look attractive, as new cars are often financed at 0 percent, with inspections included or additional services offered.
New car dealer credit – costs well hidden
You may notice the difference, but you should definitely try it: as soon as you are interested in a new car financing from the dealer, the room for negotiation on the price shrinks. He can not continue to slacken, for this you will receive the favorable new car financing – in the best case at 0 percent, for this you will surely understand. However, if you tell him that you want to pay for the car in cash, the discussions suddenly take a completely different course: you can expect discounts of ten to 25 percent if you negotiate skilfully. Where does this margin come from??
At the end of the day, car manufacturers have nothing to give away – neither on the sales price nor on the interest rates for new car financing. So if you save the interest income, you compensate this loss by a higher price of the vehicle and vice versa. another point to consider regarding dealer loans is the contractual structure: you will certainly be approached for a down payment in order to be granted favorable monthly installments. The relatively short terms, usually only two to four years, would otherwise lead to extremely high rates. Therefore, the big final payment threatens to expire – and this can become a problem.
Different financing options for your new car
There are several ways to finance a new car:
Balloon or dealer financing
This variant represents a separate type of loan, which is also offered by car dealers with a special option. As a rule, balloon financing consists of three parts: a down payment, which some dealers also waive, the actual financing period with relatively low monthly installments and the final installment. The dealer determines in advance what the residual value of your car will be at the end of the agreed credit period. Since the installments only include a small repayment portion, this can amount to between 30 and 50 percent of the actual purchase price. When the contract expires, you have the following options:
- You can redeem the vehicle by paying the final installment in cash.
- You organize follow-up financing
- You return the vehicle to the dealer – this speciality is called three-way financing.
In principle, the balloon financing is similar to leasing, but you are not only the user, with such a new car financing you become the owner of the vehicle. You are free to decide where to insure your vehicle, where to have it repaired if necessary, or what changes you want to make. You are not the owner, however, because the financing bank usually retains the vehicle title as collateral.
With this financing option, you should bear in mind that the dealer will critically evaluate the condition of the vehicle when he takes it back. If you have had an accident in the meantime or have driven more kilometers than agreed, there will be a difference for which you will be charged. Even scratches in the paintwork caused by washing or signs of use on the steering wheel, seats or other parts can become a cost trap.
Fact is:
the new car financing offered by dealers and banks is balloon or three-way financing. These are characterized by relatively low monthly installments and high additional or final payments. So this option is only recommended if you want to return or sell the car at the end of the term. However, the car should then be in perfect order.
The alternative new car financing
Imagine that you are paying cash to your dealer. Apart from the good feeling you can now negotiate properly. If you achieve a discount of ten to 25 percent, a lucrative potential opens up: your loan amount is reduced as well as the interest costs incurred, which can be interesting in the end. You should therefore first consult a credit comparison to research the providers that come into question. Here again you have two options:
- If you decide to use your loan to buy a car, you can also count on favorable terms for free installment loans. These credits are issued for a specific purpose, so you can only use them for the purchase of the new car. In return, lenders usually require additional collateral
either the transfer of the car title or the assignment of the non attachable parts of the salary.
- If, on the other hand, you choose a loan for free use, you will pay slightly higher interest, but you can keep the vehicle title. This means that you immediately become the owner of the car and are free to decide at any time whether and when to sell it. These loans come with the option of special repayment or early repayment anyway, so you can enjoy maximum flexibility.
To get an idea of how these alternatives affect your financing costs, here is a comparison:
dealer financing free credit
| list price |
25.000 € |
25.000 € |
| credit amount |
25.000 € |
22.500 € at 10% discount |
| contract term |
48 months |
48 months |
| effective annual interest rate |
0 % |
3,49 % |
| monthly rate |
520 € |
502 € |
| expenditure |
25.000 € |
24.113 € |
You can see at a glance that a ten percent discount will pay for itself. If you are even more successful in your negotiations and opt for an earmarked loan, the effect will be even greater. In addition, you can structure the financing of your new car according to your own possibilities, for example, by extending the term, you can also effectively relieve your budget – and really enjoy your new car.
Smart new car financing – this is how you proceed
So there are various aspects that play a role when you want to find out the most favorable new car financing option for you. So you should take your time to gather all the facts first:
- Check your monthly budget that you can use for the installments. On the one hand, you have to put together the income you regularly receive, and on the other hand, of course, all the costs you incur – also for your living expenses. When you determine the financial margin, you should plan a reserve to be able to respond adequately to unforeseen costs.
- If you have savings, the resulting return is interesting: if it is lower than the effective annual interest rate that you would have to pay for a new car loan, it may be worthwhile to liquidate the savings. You could reduce the amount of the loan and pay off the new car more quickly.
- To estimate the maximum loan amount, simply use a loan calculator: vary the monthly rate with the term until you get a result that matches your requirements. Please keep in mind that the term of a new car financing should usually not be longer than eight years.
- If you know your credit limit, you can go to the dealer you trust. Choose a new car according to your taste and ask the dealer for offers – both as a cash payer and for financing, preferably a new car financing without down payment and without interest.
- If you know the basic data, i.e. the discounted price of the new car and the financing conditions, you can start the comparative calculator and run through the various options.
- Add up the total financing costs in each case, as the effective annual interest rate alone is not sufficient for comparison purposes. Of course, it is difficult to calculate the initial and final payments in the way that you will actually have to pay them. Nevertheless, you will get an impression of the savings potential.
Fact is:
there are attractive alternatives to traditional car financing that offer interesting savings potential. However, the optimal variant always depends on your requirements and your needs.
Wide variety of loan options for your new car
The range of installment loans is not only growing, the contractual conditions are also becoming increasingly flexible: the terms can be set between 12 and 120 months, and the loan amounts can be as low as 50 percent.000 euros. However, your income plays a decisive role here: the monthly installments must match your free financial leeway in order to ensure reliable repayment. If you meet these requirements, you can choose from a whole range of offers. There is one point you should pay special attention to: the interest rates are either shown as variable or as fixed interest rate. This shows the different approach of the providers, who set the conditions either depending on creditworthiness or independent of creditworthiness.
- Conditions depending on creditworthiness
these offers are shown as an interest rate range, such as 1.9% to 7.9% – with the lower rate taking center stage. This is also used to calculate the monthly installments in the results list. As a result, these credit offers regularly land on the top ranks in the list. However, the conditions you are granted depend on your creditworthiness. The lenders will first check your details and then make you an offer. It is unlikely that you will get the best interest rate. However, you can use a good starting point: you will find an example calculation for each provider that refers to the conditions that are granted to two-thirds of the applicants.
- Conditions independent of creditworthiness
in these cases, the interest rates are fixed from the start – regardless of your credit rating. If you receive a credit approval, you know exactly what the conditions are.
If you use the sample calculations as a guide, the ranking in the results lists would shift significantly. Of course, there is always a chance that you will get better interest rates than in the example calculations – a condition query for your new car loan could provide information here.
Other important criteria for your alternative to the classic new car loan are defined in the contractual terms and conditions: for example, the option of free unscheduled repayment can give you a comfortable margin, as can the right to repay the loan early or a possible installment break. This is how you can react to the most diverse situations. If you receive a larger amount, for example, you simply pay off part of the new car loan and it is yours sooner. However, if you find yourself in a financial bottleneck, you can stop paying the installments and conserve your liquidity.
New car financing without SCHUFA – is it possible?
in a nutshell: you will not be able to obtain financing for a new car from a german bank without a credit report. Whether you use SCHUFA or one of the other credit agencies is irrelevant: the point is to be able to assess your creditworthiness and thus the risk of default in advance. Banks in germany are obliged to do this. At the same time, it is common for your new car loan to be registered with the credit agencies so that other banks, service providers and retailers can assess your financial background.
Of course there are some alternatives, but not all advertisements that you find on the internet are to be taken seriously. If they talk about a loan without SCHUFA and without income, it’s not worth going into it at all: if a lender, usually a foreign provider, waives the credit check, he has to concentrate on your income – he doesn’t have any other security. If you are interested in an alternative to the usual new car financing, you should pay attention to the seriousness of the provider.
On the one hand, special credit brokers who work with providers in switzerland or in other european countries are eligible for these offers. Here the german guidelines for the granting of credit do not apply, a query with the SCHUFA is just as little a condition as the entry of a credit in the credit agency. However, it comes at a price: the conditions are usually much higher than those you would get from a dealer or a bank in the regular way. If, however, you are unable to do this because you have negative entries in your SCHUFA or you do not want the credit to be registered there, then this option is open to you.
On the other hand, there are also portals that specialize in brokering loans from private individuals: here, credit information is usually obtained, but it is evaluated more generously. If you can prove that you have sufficient income, this could also be an option for financing a new car.
New car financing – many ways to a favorable loan available
as soon as you are interested in a new car, the topic of financing comes up – already the dealer will be happy to provide you with offers. However, you should take some time to find out the best option for your needs, because you can make enormous savings. The first step is to negotiate a substantial discount for a cash payment – ten to 25 percent is quite realistic. This would significantly reduce the required credit volume and consequently also the total financing costs. In addition, you should carefully analyze the dealer’s offer, which is usually calculated with a higher final installment, which in turn can become a problem. The alternative can be found in the credit comparison, which you can start with the discounted purchase price. If you vary the term so that you receive a reliably affordable monthly installment, the new car will give you even more pleasure.
