An auto loan is one of the most demanded secured loans in our country. The popularity of this service is due to the ability to receive funds in the required amount the same day. At the same time, the car owner does not have to do major paperwork and be nervous about problems with credit history.
Features of secured loans
A secured loan is based on a standard system in which the lender transfers the required amount of money to the borrower’s account. The latter undertakes to make payments in accordance with the schedule, which is developed during the execution of the contract.
As with any banking operation, an auto loan requires obtaining guarantees of compensation for the issued funds. In this case, such a guarantee is a car, which acts as a security. Simply put, you give the lender documents, and in return, you get a loan on collateral. If all payments, according to the agreement, are made correctly, all papers will be returned. Otherwise, the question is raised about the sale of a car for receiving cash to cover the debt.
If buying a car without a down payment is the purpose of borrowing money, then the system practically does not change. The acquired property automatically becomes active collateral.
When applying to a bank for a regular consumer or auto loan, you can face a lot of difficulties. They begin already at the stage of preparing papers. Bank employees almost always require a variety of certificates from employers, the pension fund and the tax office. In addition, with relatively large amounts, it becomes necessary to search for guarantors, which takes up extra time. Plus, not everyone wants to notify friends or relatives that they are taking out a secured loan. All this does not guarantee a successful approval even with a good history of previous interactions with creditors. However, you are guaranteed to lose a lot of your own time and nerves. These resources are known to be very difficult to recover.
What are the types of auto loans?
There are 2 types of auto loans:
- Standard car loan – a loan for the purchase of a car and another motor vehicle for personal use (consumer purposes);
- Commercial car loan – a loan for the purchase of buses, trucks and special equipment on a car chassis for use for production purposes.
What is required from the car owner?
The entire procedure for a secured loan is fast and in the overwhelming majority of cases end successfully for all parties. Almost any car enthusiast can apply for an auto loan online. It is necessary to comply with some of the parameters established for the honest and legal fulfillment of all obligations.
- a valid ID, the period of which exceeds the required time to repay the loan;
- age 21 or over;
- document confirming the right of ownership;
- driver’s license;
- original or notarized duplicate of the vehicle passport.
- official registration with the traffic police;
- good technical condition;
- liquidity in the local car market;
- absence of valid arrests or other encumbrances.
How to get an auto loan: step by step instructions
To get a loan and buy a car without long-term savings, just follow a few simple steps.
For many people, a loan is the only way to buy a car. Thanks to this banking service, you won’t have to spend many years accumulating the required amount. To buy a car, you just need to prepare a stand-ard package of documents and perform a few simple steps. At the same time, some of them today can be taken online without leaving home.
The time from applying for a loan to getting a personal vehicle is only a few days. In addition, the interest rate on car loans is much lower than on other types of lending. And you can use borrowed funds both for buying a new car and for purchasing a used car. We have compiled a simple step-by-step guide to help you get a car loan quickly and safely.
Step 1: apply for a loan
First of all, a potential borrower needs to assess their financial capabilities. The monthly payment must not exceed 30% of the total family income. The appropriate model and loan program should be selected based on this. A car that is too expensive can cause a permanent shortage of funds. It will be easier to choose a bank by drawing up a table and describing the conditions of various programs that seemed most attractive.
There are many ways to apply for a car loan. For example, fill out a special form on the bank’s portal or visit the office in person. Requirements for borrowers are usually posted on the official websites of credit institutions. Another way is to fill out a form on the dealer’s website, indicating the model you like. The manager of the car dealership will contact the potential borrower to clarify the details and independently send the application to several partner banks at once.
Step 2: submit documents and wait for a decision
The list of documents that will be required for consideration of the application can be clarified on the bank’s website or with a loan officer. The classic package includes an ID, an income statement, a certified copy of a work record book and an application for a loan. In rare cases, employees of financial institutions are additionally asked to bring a copy of a higher education diploma, marriage certificate, TIN, a bank statement and other papers.
Recently, express lending programs are gaining popularity. In this case, the issuance procedure is simplified as much as possible: money is provided on the basis of an ID and any second document. For example, a driver’s license or military ID. The interest rate will be higher by 3-7%.
It may take from several minutes to several days to make a decision on an application, depending on the bank and the lending program. If the solvency of the client seems insufficient to the employees of the credit committee, he or she will be offered to look for a co-borrower or guarantor who will share responsibility for the loan with the future car owner.
Step 3: make a down payment
The next step is to conclude a sale and purchase agreement with a dealership or an individual from whom the borrower purchases a car. At the same time, the initial payment is paid. As a rule, it makes up from 10 to 50% of the value of the vehicle. In this case, there is a common rule: the larger the amount of such a payment, the less the overpayment on the loan.
After concluding the contract, the buyer receives two sets of keys, a vehicle passport, a service book, and an invoice with the remaining debt. You need to decide on a specific car and complete these procedures within a limited time period, which is set by the bank.
Step 4: get an insurance policy
Most often, issuing a comprehensive insurance policy is a prerequisite for providing a loan. Since the car becomes collateral, it is important for the bank to protect it from all sorts of troubles. Therefore, such insurance must be valid for the entire term of the loan. At the same time, the bank has no right to force the client to get insurance. Instead, the bank can set a higher interest rate or refuse to provide a loan.
The sum insured must be equal to or higher than the market value of the car. At the same time, credit organizations usual-ly limit the list of companies where you can buy insurance to the list of their partners. Thus, the bank minimizes the risks in case of default on loan funds, for example, if the car is damaged in an accident or is stolen. Standard documents for drawing up an insurance contract is a copy of the ID, driver’s license and title.
Step 5: conclude an agreement with the bank
After that, the buyer goes to the bank to sign a loan agreement and a collateral agreement. The latter limits the borrower’s rights to dispose of the vehicle. That is, without the permission of the bank, the owner will not be able to sell the car, rent it out, re-register it to another name, or make significant design changes. Such actions may qualify as fraud. If the debtor regularly delays payments, the bank can seize the car and sell it in order to get its money back.
Before drawing up a loan agreement, it is important to carefully study its terms. Sometimes such a document contains controversial points and protects only one side. It is better to ask for the draft agreement in advance and read it in a calm atmosphere, and if you find any incomprehensible wording, contact a lawyer. If the agreement infringes on the rights of the borrower, demand to change its terms or apply to another credit institution.
Step 6: take the vehicle from the seller
The bank transfers the credit money directly to the account of the selling organization. The transfer procedure may take several days, after which the purchase will be considered valid. Before signing the deed of transfer, it is important to thoroughly inspect the car and check all documents for errors. The identified shortcomings should be entered into the act – this will make it easier to protect your rights in court.
After that, the borrower will only have to register the car and transfer the original vehicle passport to the bank for safe-keeping. By the way, it is better to purchase an insurance policy. The policyholder in this case may get an additional discount.
Pros and cons of an auto loan
The main advantages of a car loan are:
- minimum interest rates;
- ease of processing a loan;
- preferential car loan programs;
- advantageous offers from partner banks.
The issuance of a car loan involves collateral – the purchased vehicle. Thus, banks provide themselves with a guarantee of debt repayment and. Due to the reduction of risks, they are ready to provide lower interest rates (compared to a cash loan.
You can apply for a car loan directly in the salon, which is much more convenient. The buyer has the opportunity to choose the most suitable program on the spot, make calculations of payments and submit an application.
The partnership between banks and car dealers also results in numerous promotional programs. For example, there are special offers that apply to specific brands or car models.
The relative disadvantages of auto loans include:
- collateral in the form of purchased vehicles;
- the need for a down payment;
- compulsory insurance;
- restriction of places of purchase.
Under the terms of a car loan, a car is considered as collateral. That is, until the debt is repaid completely, its owner is not a full-fledged owner.
It is not possible to issue a purpose loan for the entire cost of the vehicle – you will need an initial contribution of your own savings in the amount of at least 15%. The larger this contribution, the lower the interest rate.
Unlike a regular loan, a car loan requires mandatory insurance. In some cases, there may be additional insurance conditions.
You can buy a car under the target loan program only from part-ner dealers of the bank. To buy a used vehicle on the secondary market, you need not a car loan but a cash loan.
Differences between a car loan and a personal loan
The main differences between these types of loans are in the purpose of the loan provided by the bank. Under the car loan program, you can only purchase a vehicle from an authorized dealer. Unlike a car loan, a personal loan allows you to buy anything, including a car. At the same time, there are no conditions regarding the seller: you can buy a used car and a new car. And a personal loan comes with a higher interest rate.
Which is better to choose: a personal loan or a car loan?
The final choice of the loan form depends on the goals. If you plan to purchase a new car from an authorized dealer, it will be more profitable to get a car loan than a personal loan. If insurance is not planned or is unreasonably expensive, it is worth considering a personal loan.
Some cases do not provide freedom of choice. So, to buy a used car from a private owner, you will need a loan for general needs. And in order to use a government subsidy or a dealer’s special offer, you will need a car loan since a personal loan is basically not suitable for this.
As a summary of the above, it can be noted that both a car loan and a loan for general needs are worthy of attention when buying a car. Each of the options has pros and cons. If both types of loans are equally suitable, it makes sense to make a full preliminary calculation for each of them.
Things you should pay attention to
- The first thing to consider: a loan for a used car can be more expensive because banks set high rates for them and you will also need to buy auto insurance;
- Do not forget about insurance and additional life insurance – these items can be indicated in the loan agreement as a mandatory condition for getting a loan. However, the bank usually recommends certain insurance companies. If you decide to buy policies from other insurers, the terms of the contract may change;
- Another important point is the down payment. Usually, the larger it is, the lower the interest, but you need to calculate so that this down payment does not create a hole in your budget. You can get a loan without a down payment, but it requires more documents. You will have to prove that you can repay this loan: at least provide income certificates;
- Read the purchase agreement carefully. Check if the characteristics of the car are indicated correctly, including color and number, as the contract stipulates the issue of registering a car with the traffic police. If something is not clear, please clarify so that later you will not find any hidden fees and additional fees – for example, “for the services of selecting a car.” Of course, when buying a vehicle, do not forget to carefully inspect it.