February 12, 2022
Advantages and disadvantages of a car loan – this you need to know!
Buying a vehicle of any kind very often involves taking on a certain amount of debt. Nowadays, for various reasons, very few people buy cars for cash. Many people thinking about financial help rely on leasing, but there is another solution that has grown in strength over the years. This is, of course, the car loan, which has many advantages. However, as you can guess, there are two sides to every coin and it also has its drawbacks. What is worth knowing about it?
Car loan – what is it?
A car loan is nothing more than one of the most popular solutions decided upon by people intending to purchase a new vehicle. The word vehicle is very important in this case, because the benefit allows you to finance not only the purchase of a car, but also a scooter, truck, motorbike, or even a motorboat. Who can opt for a car loan? Any person who intends to purchase a new as well as a used vehicle. The benefit itself can be taken out from either a bank or an authorised car dealership. What is the difference between a car loan and a cash loan? The most important difference is the purpose for which the money will be used. In the case of the presented solution, it can only be a vehicle. A cash loan, on the other hand, allows you to obtain funds which do not have a specific purpose.
What are the advantages of a car loan?
- Low cost. In comparison to a cash loan, a car loan is characterised by a much lower cost. This is due to the fact that the bank, in the case of a loan for the purchase of a vehicle, uses appropriate collateral that reduces the risk.
- High commitment amount. It goes without saying that everything depends on the customer’s creditworthiness, although the final amount of the loan can reach up to one million zlotys.
- Long financing period. The loan repayment may be spread over as long as 10 years, which for many people is a great advantage. This results in small monthly instalments.
- Choice of repayment option. Liabilities can be paid in equal or decreasing installments. There is also the possibility of using the so-called balloon instalment.
- The possibility of buying new and used vehicles. It is no secret that new cars are preferred, although nothing stands in the way of a car loan being granted for a used car as well.
Car loan disadvantages – you need to know!
- Necessary collateral. One of the most common types of collateral used by banks for a car loan is transfer of ownership and a registered pledge. Consequently, if you take out a loan against a vehicle, the bank will appear on its registration certificate. As it will be joint owner of the car, it will not be possible to sell the car without the bank’s knowledge.
- Compulsory AC insurance. Compulsory AC insurance with assignment of rights to the bank says that if the car is damaged or stolen, the insurer will pay the bank.
- Formalities. The amount of documents you will have to provide to the bank, in case you decide to get a car loan, is really considerable.