Ongoing loan for a car
For the variant without down payment and final installment, all of the lenders mentioned are eligible. In this case, it should be noted that car dealerships and the car banks connected to them generally offer cheaper interest rates on a car loan, even for used cars. At first glance, therefore, the motor vehicle loan that the dealer arranges appears to be the first choice if only the interest rate is considered. Branch and direct banks also offer relatively low-interest motor vehicle loans, the terms of which are always more favorable than consumer loans for free use.
This is due to the collateralization of a car loan via the Kfz letter, which remains with the bank. For comparison: In autumn 2014, branch and direct banks offer vehicle loans at interest rates of 3.9 to 4.8 percent, for new and used cars alike, while non-functional consumer loans range between 4.0 and 8 depending on the creditworthiness of the borrower, Interest of 0 percent.
Car dealers and banks
Car dealers and banks have long been paying zero percent interest on new car financing, and used cars can have a rate of 1.0 to 2.5 percent. At first glance, the car dealerships are at the top when comparing interest rates, but car buyers can use the credit from another bank (often their own bank), which is transferred to them as cash, to negotiate a cash payer discount with the car dealer, which more than compensates for the higher interest rates, This discount is 20 percent and more for new cars, and up to ten percent for good used cars. Here are two examples:
- A new car costs 25,000 USD and would be financed without interest in the dealership. So the loan for the car obviously doesn’t cost the buyer anything. Nevertheless, he inquires at his house bank about a motor vehicle loan and could get it for 4.5%, while the dealer promises him a 20% discount when paying in cash. The buyer chooses the house bank loan and runs the financing for five years. At a monthly rate of $ 466.08, the interest costs total $ 2,964.53. The retailer’s cash discount would be 5,000 USD and the savings would be 2,035.47 USD.
- For a used car with a price of 12,000 USD, the car dealer issues a loan at 2.5 percent interest through its affiliated bank, which, with a term of three years and a monthly rate of 346.34 USD, causes interest costs of 468.11 USD. The house bank in turn gives the buyer a loan for a car at 4.5 percent interest, the costs for a three-year term and a monthly installment of 356.96 USD total 850.67 USD. The dealer would give the customer a 10 percent discount for a cash payment, the savings are calculated as follows: Cash price minus discount = $ 10,800, i.e. savings of $ 1,200 minus interest rate difference between branch and car bank loans (850.67 – 468.11 = 382.56 USD), thus total savings on the house bank loan of 1,200 – 382.56 = 817.44 USD.