Advantages and pitfalls of car loans in Russia

The overwhelming majority of citizens do not have the opportunity to purchase a car for their own money savings. In addition, few people want to dream about the desired car for years, putting aside funds for future purchase and continuing to comprehend the delights of public transport. The solution to the sore problem can be a car loan, since today its registration is not difficult, because almost every bank offers this type of service on different conditions, suitable in certain situations. To get a long-awaited car, it is enough to determine for yourself the best option for concluding an agreement, collect the necessary documents and submit an application to the bank for consideration on the issue of a loan. After a while, sometimes in the shortest possible time, you can get a long-awaited car.

Competitive struggle of financial organizations forced to lower interest rates on loans, and banks are vying with each other to offer clients all kinds of programs that attract their simplicity of registration and a small overpayment. You want to get the keys to your dreams as soon as possible, and the offers seem very tempting. Are they really as beneficial as it might seem at first glance? It is definitely not worth rushing into making a decision, and in order to figure out which is better - a car loan or a consumer loan, you need to carefully study the banking services market before signing a contract in a hurry. The task is simplified if you already have a certain amount on hand to pay off the initial payment, and the more it is, the less the percentage of overpayment will be. But not all citizens have even a small part of the funds for the purchase of a car. The variety of lending programs also solves this problem, allowing you to choose the right conditions in each specific case.

Varieties of lending programs

To clarify the picture, and find the right decision on which car loan to choose is better, we will consider the types of programs offered by banks:

1. The classic loan is the most popular among the population, it is the most profitable option that allows you to buy a car with the least overpayment. In this case, it will be necessary to make an initial payment of 10% of the cost of the car, the remaining amount is distributed over the loan term (from 1 to 5 years).
2. An express loan is issued quickly, a minimum of documents is required to conclude a contract (a passport and a driver's license will be enough), no income statement is needed. This type of lending involves a high interest rate.
3. Loan without down payment. In this case, the bank will present more stringent requirements for the client's solvency, other unprofitable conditions are also possible. Rates depend on the term of the loan and the type of currency.
4. Loan without insurance. Some banks practice issuing a car loan without issuing a CASCO policy, which is mandatory in all other lending programs. On the one hand, insurance is not cheap, and the opportunity to get rid of the need to pay for it seems tempting, but on the other hand, additional expenses appear in the form of a large down payment and a high interest rate. In addition, under such programs, the choice of cars is rather limited.
5. Trade-in involves the exchange of a used car for a new one. The used car pays off part of the cost of the new car, the remaining amount is paid by the client.
6. Buy-back or buy-back loan. The program involves the payment of the down payment, the partial cost of the loan and the last payment at the end of the term. Deferred payment can be paid by the customer or the car dealer (if you decide to change the car). It is also possible to extend the terms, but then the overpayment will be much greater.
7. Factoring or interest-free loan. Half of the cost of the car is paid by the client immediately, the remaining amount is distributed in installments without interest.

You can find out which car loan will be more profitable by examining all the points of each of the proposed programs. The circumstances and possibilities of the client are also taken into account, therefore, in specific situations, completely different credit conditions are preferable.

Customer credit

A consumer loan is a loan issued to a client by a financial institution for the purchase of any durable goods, including a vehicle. In this case, the car will not be the subject of a pledge, unlike the conditions of a car loan. A targeted loan involves spending the funds received exclusively on a specific product, while a non-targeted loan allows you to dispose of the amount at your own discretion. To decide which is the best loan for a car, you need to consider all the advantages and disadvantages of each option.

Benefits:

1. The main advantageous feature is that a car bought in this way is your property, which you can dispose of as you like, sell, donate, etc. You do not need to wait for the end of the contract. The vehicle will not be pledged, so the bank will not be able to confiscate it from you in case of non-payment of the loan.
2. You are not limited in the choice of a car or a seller, so you can buy both a used car and a new one at a car dealership or from a private person.
3. There is no need to purchase an expensive CASCO insurance policy, which is most often required under the terms of a car loan.
4. No commission for early debt repayment.
5. The opportunity to get a discount at a car dealership when buying a car for cash.

Disadvantages:

1. It is not so easy to receive a large amount in the absence of collateral, the bank has strict requirements for the client, and the possibility of getting a refusal is high.
2. It is necessary to collect a large package of documents and confirm your solvency; you will also have to acquire guarantors. Registration is possible without the participation of third parties vouching for you, but then you should expect a high interest rate on the loan.
3. It takes a lot of time to approve a loan.
4. You will be limited in the choice of the vehicle by the amount issued, if there are no additional funds raised for the purchase.

Which loan option is more profitable, a car loan or a consumer loan, must be considered on an individual basis. In each specific case, the terms of the contract may or may not correspond to your capabilities, therefore, to make the right decision, you need to take into account all the nuances.

Car loans

To decide what is better to apply for, a car loan or a consumer loan in your case, we will also consider the advantages and disadvantages of car loans. A car loan is a targeted loan for the purchase of a car. Depending on the type of lending program, the conditions offered to the client also differ.

Pros:

1. small down payment, low interest rates;
2. the ability to choose the appropriate option for the lending program;
3. you can get a car in a short time;
4. no guarantors required;
5. you can take advantage of additional benefits and discounts provided by the government, car dealership or car manufacturer.

Minuses:

6. The car is the subject of a pledge, you will be able to dispose of the property only by paying the loan in full.If you do not make payments, the lender has the right to take the car away from you in order to pay off the debt.
7. Compulsory auto insurance. When choosing a program without applying for CASCO, the interest rate increases significantly.
8. In case of early repayment of the loan, additional charges are charged.
9. Under the terms of some programs, the choice of car models is limited.

Car loan registration in the salon

You can apply for a car loan at a bank or directly at a car dealership, the conditions are slightly different, but there are still some nuances for each type of loan. Which of the loans is more profitable to take for the purchase of a car can be determined by evaluating the pros and cons of each of the options. Today, almost every major car dealership provides an opportunity to draw up a loan agreement on the spot.

Advantages:

• ease of registration;
• saving time;
• the speed of obtaining a loan;
• the opportunity to consider several programs at once from banks cooperating with a dealer;
• getting a discount or bonuses from a car dealership;
• additional equipment for the car can also be included in the loan amount.

Weak sides:

• the range of choice of banks that provide car loan services is narrowing;
• it is often impossible to choose an insurer, so a CASCO policy can be much more expensive.

When applying for a car loan, it is important to carefully and slowly study all the nuances of the contract before signing it. Dealers and bank employees may keep silent about some points, while in the documents they will necessarily be spelled out, often in small print.

Special lending programs from car dealerships

In some cases, special offers from car dealerships, such as Trade-in or Buy-back, will suit the car buyer. Today, these systems have become very popular, but also, in addition to advantages, they also have disadvantages.

Trade-in

Under the terms of the program, the cost of the old car is the first payment on the loan. This is a pretty attractive system for those looking to change cars. At the same time, you will not have to wait until your car is sold, the dealer will buy it from you if the technical condition of the car meets the conditions of the program. After that, you just have to pay the difference between the used and purchased new car. The convenience of the program is nevertheless overshadowed by some points, such as a limitation in the choice of a car and a low rating of a used car.

Buy-back

The program may be of interest to those who like to change cars regularly. According to its terms, the cost of the car is divided into three parts:

1. An initial fee. The client pays 10 - 50% of the cost of the car.
2. "Comfort period" means monthly payments calculated in such a way that by the end of the term there will be 20 - 40% of the total amount left.
3. Residual payment. The amount frozen until the end of monthly payments is paid in one time. The client can keep the car for himself, repaying the loan, or sell and pay the rest from the proceeds. The rest of the money can serve as a down payment for a new car. If necessary, you can also extend the loan term, but the overpayment will be much higher.

Despite the advantages in the form of small monthly payments and the ability to sell a car before paying off the debt, the program has significant drawbacks, such as compulsory insurance, servicing in official service centers and circular credit dependence in case of obtaining a new loan to pay off the balance or purchasing a new car on credit.

Where to stop

First of all, you need to decide what kind of car you want to buy, and correctly assess your own capabilities, because after purchasing a car, you will have additional expenses for its maintenance. Taking a loan, even if the best option is available, should not delay payments, because fines can significantly affect the stability of your wallet. Of course, the most profitable car loan will be the one that provides a low interest rate, and the larger the down payment, and the shorter the loan term, the less you will overpay in the end.

There are enough offers on the banking services market, all of them can be suitable for certain situations and be profitable in one way or another. Some programs are offered on special terms if you are a client of this bank. You can also benefit by buying a certain car brand through loyalty systems or promotions from the manufacturer, as well as using government subsidies. It is necessary to choose a program after carefully calculating all the points and thoroughly studying the terms of the agreement for all kinds of additional commissions and other "pitfalls".