How to find the best car financing
A car is synonymous with independence, comfort, driving pleasure, freedom from the constraints of public transport. However, it is an expensive product at the same time, and savings are often not enough. In these cases it is essential to resort to financing. So let’s see the best auto loans.
Auto loans are credit lines aimed at purchasing a vehicle, whether new or used. Among the vehicles deemed relevant, in addition to cars, we have motorcycles, campers and boats.
The repayment plans can reach ten years and are characterized by a fixed rate. Instead of having to face an important sum to be paid in a single solution, the buyer proceeds with a repayment in installments. It is therefore essential to identify a sustainable loan in relation to one’s profitability.
First of all, the dealer will propose formulas for accessing credit, but to recognize the best car loans on the market, it is necessary to evaluate the largest number of offers and to compare rates and conditions.
What is the cheapest loan
Before dealing with the various loan offers, it is necessary to clarify the factors to consider in order to find the best auto loans. When you want to compare different financing solutions, you need to consider several factors.
First of all the periodic installment, usually monthly, to be paid. Payments must in fact not impact excessively on the applicant’s periodic income. In principle, banks and financial institutions do not accept loan applications which foresee a monthly installment higher than 20% of the monthly income received by the applicant.
A general rule that aims to protect the credit institution, which thus avoids taking out loans with a high risk of default. However, what has just been said is to be considered only as a general rule. The final word regarding the granting of the loan is up to the bank, which can also choose to grant a loan with an installment higher than 20% of the applicant’s monthly income.
In addition to the monthly installment, those looking for the best auto loans must also consider the interest rates applied. In this regard it is necessary to make a distinction between Tan and Taeg. Let’s see in detail what the differences are.
Difference between Tan and Taeg
The Tan is the Nominal Annual Rate and represents the interest applied on the granted capital. Tan is expressed as a percentage on an annual basis. Value indicating the interest applied on the sum granted each year. The interests, we remind you, are spread over the amortization plan. Each installment to be paid is in fact composed of a principal and an interest. However, the amount of the interest portion varies according to the type of amortization.
In any case, we can say that the Tan has a direct effect not only on the cost of the loan, but also on the amount of the installments. The higher the rate value, the higher the installment amount to be paid. However, the Tan is not a sufficient parameter to establish the cost of a loan and evaluate its convenience.
In addition to the rate, there are several other cost items to consider when looking for the best auto loans. The reference value in these cases is the Taeg, or the Global Effective Annual Rate. Also known as a Synthetic Cost Indicator, the Taeg represents the sum of all costs applied to the loan. In addition to the interest rate, the Taeg also includes mandatory ancillary costs.
In other words, the following expenditure items are included in the calculation of the Taeg:
- stamp duty or substitute tax applied on the contract;
- expenses for the preliminary investigation;
- installment collection costs;
- installment management costs;
- costs due for periodic communications.
However, it is necessary to clarify that optional ancillary costs are not included in the calculation of the Taeg. What does it mean that the rate does not include costs that the borrower may have to bear, but are not mandatory. An example of such costs is represented by notary fees. Not only. The costs that may not be included in the Taeg also include the costs relating to the subscription of an optional policy to cover the loan.
Car financing simulations
As already mentioned, to find the best auto loans it is necessary to consider different financing solutions. This is the reason why we have chosen to take into consideration the profile of the average applicant to compare the advantages (and limits) presented by the various providers.
The applicant hypothesized by our installment calculation is interested in a loan for the purchase of a new car or at zero km from 15 thousand USD. The repayment plan is structured in 60 monthly installments. As regards the applicant’s profile, we have entered the data relating to an employee born in 1980 in the simulation form.