A car buyer can take out a loan either through the dealer at a car bank or at a self-sought commercial bank. The car loan taken out with a commercial bank offers the greater advantages.
Why car loan is cheapest at a commercial bank
The effective annual interest rate of a dealer bank is often unbeatable. This applies particularly to special conditions such as zero percent financing, which is only offered for vehicles that are selling poorly or models that are soon to be replaced. The corresponding vehicles are difficult to sell as used cars in a few years and are ideal for buyers who drive their car regularly until the end of its life.
The regular bank loan for buying a car is associated with a higher APR compared to the dealer loan.
Nevertheless, bank credit for a car purchase is almost always the cheaper solution, since in this case the vehicle purchaser acts as a cash payer vis-à-vis the dealer and can negotiate a high price discount with sufficient negotiation skills.
Many options for a car loan
The classic bank loan for a car purchase was associated with a down payment to be made out of savings or the proceeds from the sale of a used car and subsequent monthly installments until the car was paid in full. Even if this form of vehicle financing through a commercial bank continues to be the standard, there are now alternative options such as agreeing a final installment or three-way financing. This combines the advantages of a conventional vehicle loan with those of leasing, whereby the buyer only decides at the end of the term between returning the car, paying the remaining value in full or financing it afterwards.
Why bank loans are particularly cheap for a new car
The fact that vehicle buyers at commercial banks receive a discounted bank credit for buying a car is primarily due to the competitive situation between the car banks of the dealers and the credit institutions. If these bank loans offered for a car purchase without a discount compared to the usual conditions for a consumer loan, significantly more vehicle buyers would opt for financing from the dealer.
Buyers can only save money compared to vehicle financing through the automaker’s bank through the interaction of cash payment discounts and cheap car loans. For the bank, vehicle financing is significantly more secure than other loans, since the vehicle buyer pledges the vehicle to the lender until the loan is fully repaid.
Thus, the commercial bank paying the car loan can sell the vehicle if the loan installments are not paid. In addition, it is customary to deposit the vehicle letter with the bank that finances the vehicle, which means that resale of the car before the vehicle loan is repaid is effectively excluded. The comprehensive insurance, which is mandatory for every vehicle financing, protects against possible vehicle losses as a result of an accident or theft.