Buying a new car often means making an economic effort that is beyond our means. If we like a model that we cannot pay in cash, we have the option to finance the purchase, offering an initial amount of money in the form of a ticket and supplementing the rest of the amount through a certain number of monthly installments. In fact, this is the option that the majority of Spaniards choose, according to the data collected by different consumer associations, although it is not always their priority.
Many dealers require financing the purchase of the vehicle as an insurmountable condition so that the customer can benefit from the promotions offered. From offering an attractive price or equipping the car with a superior configuration to giving away the first year of insurance or extending the term of the guarantee, all are strategies to take the buyer to the field that interests them most: financing. And why are they so interested in doing it? Because the profit margin left by the sale of a car is so small that sellers look for complementary formulas to achieve greater profitability in the operation.
Dealers prefer that customers subscribe a loan with their own financier to increase the profit margin
Using a financing system, we will end up paying more for the car than if we had bought it in cash. It is a clear statement that we must not give any more thought: we get an amount of money on account that we will have to return it in comfortable monthly installments. To all this we must add the interest that we will have to pay for said loan. If that interest is 10% and we have to return 1,000 euros, we will end up paying 1,100 euros. Now, it is not the same to have to repay the loan in one go or in monthly installments, nor is it the same to do it in two or four years, since the interests accumulate. Therefore, the longer we take to repay the credit, the more money we will have to pay in interest and, consequently, to pay off the debt we have with the person who has lent us the money.
Rising mode
Financiers linked to brands seek to trap the client with offers and promotions to increase their profit margin
With that said, we will see below the different formulas in the market to finance the purchase of a car.
Bank loan
This is the most common formula that Spaniards have historically chosen to get into debt with the purchase of a car. A loan is signed with the bank or savings bank and depending on the interest rate, a fixed or variable fee is paid for a specified period. In recent years, however, the appearance of financing closely related to concessionaires and the current context of economic crisis, which is tightening the requirements to obtain a loan, is reducing the strength of banks in financing operations by the buying a car.
Dealer Financial
As has been reflected, more and more dealers have their own financial institution and design the sales strategies linked to the subscription of a loan to increase the profit margin. As their objective is to sell the car, they tend to be less demanding with the requirements that the buyer has to meet than banks. As a general rule, they offer a lower interest rate – the manufacturer assumes part of this interest – and they link the offers and additional services of the sale of the car with the credit. However, the fine print hides that, as a general rule, the economic and additional advantages (guarantee, maintenance …) are lost if the client decides to repay the loan before its maturity.
Buying a vehicle requires taking into account many aspects, so it is interesting to consider the option of renting
Selective credit
Also known as multi-option, it is a credit offered by car brands very similar to the previous two modalities; In other words, it is about agreeing a number of installments and paying them month by month. The difference is that when a date set by the parties is reached, the buyer has two options: either return the car to the dealer or continue paying the remaining installments. If the contract contemplates it, there is a third option, which consists of changing the car for another from the same manufacturer.
Renting
This formula, which is like a long-term vehicle rental, was reserved for years for SMEs and the self-employed, but in recent times individuals have also joined it. It offers tax advantages and the dealer takes care of maintenance and repairs, taxes and car insurance. That is paid in some way and the price is an interest rate that is higher than if the car is financed, although the installments are fixed, that is, the same is always paid. It is also penalized to travel more kilometers than those agreed. Renting contracts usually range between 2 and 5 years; After this time you have two options: change your car or return it.
In Spain, more cars are sold financed than paid in cash
Leasing
It is very similar to renting, since it is about renting a car for a certain period of time – between 2 and 5 years is the most common – but with two major differences. On the one hand, there is the possibility of buying the vehicle by paying the last installment, which does not contemplate the renting, and on the other, the renter -who uses the car- is the one who must take care of the maintenance, taxes and insurance costs .
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