If you want to finance a car, you must analyze all the options: how does financing work, and when should it be done?
How to finance a car is a very frequent question both from individuals with mobility needs and from companies that need a vehicle to use. Is it better to make a conventional purchase in a dealership, a purchase and sale between individuals, or opt for renting/leasing?
What are the differences in usability and financing of both models and, therefore, what is more advisable? This a question worth considering when you need a car. We give you some tips when it comes to financing your car.
What is it and what ways are there to finance the purchase of a car?
Financing a car is a simple mechanism through which a loan (debt) is granted to a person in exchange for the money for the purchase of a vehicle. It is, in short, a capital loan for the purchase of a car.
This loan is subject to a series of conditions, the most common being to set the repayment of the capital (plus interest) in monthly installments. This type of exchange is governed by Law 16/2011, of June 24, on consumer loan agreements. It allows contracts through which:
“a creditor grants or undertakes to grant a consumer credit in the form of deferred payment, loan, opening of credit or any equivalent means of financing”
Ways to finance a car
In general, there are three forms of financing when you buy a vehicle:
01. Bank financing
After you choose which car you want to buy, the next step is to go to a bank branch to request a personal loan or a “car loan,” a specific product for this case where an advisor will help you and recommend the option that best suits your needs. The capital to purchase the vehicle comes from a bank and is delivered directly to the buyer. The buyer goes into debt with the bank, to be paid in installments.
02. Financing at the dealership
This is the most common and simple option to finance the purchase of both new, pre-owned and used cars. Although the financing conditions (interest rates) may not be the most competitive in the market and insurance that increases the cost is usually included, they offer discounts on the final price of the vehicle.
03. Leasing or renting
If you are a self-employed worker or company, you may find it interesting to choose one of these options because of their advantages. Leasing can be defined as a special type of financing in which the client pays a monthly rent; after a while, they have the option to buy the vehicle under advantageous conditions.
When to finance a car
The answer is simple: financing a car is the right decision when you do not have the capital to make the purchase, or when you have the capital but you do not want to lose liquidity. Sometimes financing is more affordable than cash purchase, due to the advantageous financing conditions that some brands offer.
When you consider financing, it is not only necessary to assess the conditions (interest or repayment terms) but also the existence of alternatives to ownership. Renting by the minute, renting or leasing are some of these alternatives to consider, and the most appropriate option does not have to be the same for all needs.
How to finance a new car
Financing a new car is the most frequent option when a vehicle purchased at the dealership is financed, and it is also the one with the lowest interest. Its advantages include the fact that the dealer, working directly with banks and their platforms, will be able to offer tailor-made financing. Thanks to APIs such as the Auto Loan Calculator API, both brands and multi-brand dealers can integrate a simulator on their website that calculates the financing conditions of the vehicle to be purchased, and offers online credit approval and the possibility of signing the contract without having to go to the dealership.
This tool differs from others by its simple use and by leaving a lot of room for customization to the dealer. They can choose to redirect the customer to an external page or embed it on their website, offering end customers a frictionless experience. Customers can “play” with the calculator by entering information and selecting the monthly payment that best suits their needs.
It is an instrument to take into account when improving the conversion channel and sales funnel.
How to finance a pre-owned or second-hand car?
In Spain, approximately 2.7 second-hand vehicles (used vehicles) are sold for each new vehicle, according to the National Association of Sellers of Motor Vehicles, Repair and Spare Parts (GANVAN): it is a much wider and more dynamic market.
However, when you buy pre-owned or second-hand vehicles, financing is not usually run by the manufacturer but rather through different intermediaries such as multi-brand dealers, which usually offer different financing options. The most common option is the sale between individuals through a conventional sale agreement. Is it possible to finance this purchase? How to finance a second-hand car?
In general, it is possible to finance a pre-owned or second-hand vehicle through sales portals between individuals and dealer websites. In fact, they can use the Auto Loan Calculator API and embed it within their system, so that these platforms can offer tailor-made financing designed for each customer, as well as the advantages of using an integrated API.
By including APIs such as Auto Loan within a vehicle trading platform, customers do not need to leave the website to simulate financing and, therefore, conversion and closing of the sale are more likely. This API works in favor of both the platform and the seller and the buyer, by making it easier to buy and sell. And by doing it in a secure environment.
Can you finance the purchase of a car between individuals to an individual?
If you are looking to buy a vehicle from an individual without going through sales platforms or dealerships, there are also financing alternatives. For example, you can go to the bank and obtain a personal credit to pay for the vehicle, although the access conditions are stricter. This is a classic option that does not have to link the loan to the purchase.
There is also the option to negotiate with the seller a forward payment through a civil law contract. Under this contract, the seller, in addition to providing the car, becomes a lender, and the buyer becomes a borrower. The contract must include the payment terms, and avoid aspects such as usury.
How do I know if I can finance a car?
The possibility of financing and the conditions under which it is provided depend on your personal or business financial situation. Generally speaking, the financial institution (a bank, dealer or individual) will analyze the borrower’s financial health, which gives a measure of the risk generated when lending a certain amount of capital under certain conditions.
The data collected includes the age, documentation such as the ID card, the amount lent, the level of solvency (usually done with payroll or monthly invoices), the income statement and the working life report. Naturally, there cannot be pending loan payments (defaulted), and a guarantee may be requested.
Tools such as the Auto Loan Calculator API, from BBVA API_Market, allow both car sellers and buyers to access a viable calculation of the required financing.