The high prices of cars lead to an increasing commitment to financing the car, with the aim of being able to access it faster without having to save, in exchange for paying a fee for a certain number of months and a series of interest for that loan.
We can distinguish two large types of car financing, depending on who the lender is:
Dealer Financing
The main business of a car dealer is the sale of cars. However, in recent years, brands have finance companies that offer these services as a second line of business. They have several advantages:
- discounts: The base price of the vehicle is lower when it is financed with them.
- Speed: By not depending on the approval of a third party, the management of the loan usually goes faster. And sometimes they can accept a used car as part of the payment, avoiding the individual from selling it himself.
- Services: The concession can offer you, when contracting financing with them, from warranty extensions, workshop discounts…
It’s not perfect, like everything. Despite the discount, the interest to be paid is normally higher… and they are also usually accompanied by a commitment to stay on pain of losing that discount if you try to repay the credit early.
In addition, to make it difficult to compare with other formulas, it is not a rate on a specific figure, since it is necessary to take into account taxes, entrance fees and final fee, insurance… which is usually more complicated to understand. It may be of interest if you do not intend to sell the car before the contract expires, since they tend to put more obstacles when that happens.
Bank financing
It is the usual financing. One requests in an entity a personal loan to buy a car. Most banks have products specially designed for the purchase of vehicles. Its advantages are diverse.
- lower interest: The TIN (Nominal Interest Rate) and the TAE (Annual Equivalent Rate) are usually more competitive than those of the dealers.
- Transparency: Contracts usually have fewer clauses than those of dealerships, they are easier to understand.
- vehicle sale: If you do not trust your financial stability in the medium term, it is usually easier to sell the car with these consumer loans and then finance the debt (unless it has a reservation of title).
Of course, when you finance with an entity outside the dealer, the base price of the car is usually higher. The reason is obvious: you lose a second way to make money with the client. That is why it is convenient when negotiating a car price to know the discount whether it is financed or not. A bank will not offer you other services related to the car or its maintenance (extras, discounts in the workshop…), since it is not their business. And (this varies by entity), they don’t usually finance more than 80% of a car’s value.
