Collateral for real estate financing
It’s an image that’s becoming more and more common to those who consciously let their gaze wander through the regional development areas: there’s a great new car in the garage of the chic new building. But how does it actually work? The principle is simple – if the lender plays along. With a portion of their own contribution, it is quite possible for some home builders to finance their property and use an expensive vehicle with stable value as a backup heater. The borrower can then benefit from attractive interest rates. Then the vehicle is financed, for example, with an instant loan from creditSUN. The vehicle itself usually serves as security. But how can real estate financing be secured with the help of a car?
Which vehicle can serve as security?
Not every car can be used to secure real estate financing. Most financiers impose these basic requirements for the car to even be recognized as collateral:
- The vehicle that is to serve as collateral must not already be named as collateral in another loan agreement. In the worst case, i.e. if both credits can no longer be serviced, each lender would otherwise only receive half, which is not the point of credit protection
- The vehicle cannot serve as security if it has not yet been paid off. So if you use a car loan, you cannot use the vehicle to secure the financing of the property. On the other hand, if you bought an expensive car as an investment before the financing of the desired property was due, you can use the vehicle as security if necessary.
- At this point, another requirement is waiting to be met, because: The current value of the vehicle must be in relation to the loan amount. Lenders speak of a minimum of 30 percent of the loan amount, better still 50 percent of the loan amount. according to dr Klein, the average loan amount for a real estate loan in August 2018 was 230,000 euros. 30 percent of this is 69,000 euros, 50 percent of this sum is 115,000 euros. At this point it also becomes clear how difficult it will be to use a vehicle as collateral for real estate financing, because the current value (!) of the vehicle would have to be between 69,000 and 115,000 euros.
Which vehicles are even suitable in this price range?
In 2017, the average price for a new car climbed over the 30,000 euro mark for the first time. According to the report by Deutsche Automobil Treuhand from 2018, buyers had to pay an average of 30,250 euros (!) for a new car. The reason for this is the increased household income. If you want to use a car as security for real estate financing, you have to look around in the high-price segment, i.e. brands like Audi, Mercedes-Benz and Porsche have to be in order to have a vehicle that has an average market value of between 69,000 and 115,000 euros can secure real estate financing.
How is the current market value of a vehicle calculated?
There is no simple formula that can be used to determine the fair value of a vehicle. Basically, the market value is used to indicate what selling price would be possible at the current time – and that in turn depends on the age of the vehicle as well as the mileage, care and the regional used car market. Of course, any accidental damage also reduces the current value of the vehicle. In order to determine the fair value in detail, a vehicle appraiser must be consulted. If you only want to determine the approximate estimated value, you can follow these rules of thumb:
- In the first year, a new car loses about a third of the original price.
- In the second and third year, the loss in value averages five to six percent.
The estimation tool from Bewerta, for example, offers help in calculating the current value.
When does the vehicle typically serve to secure a loan?
The answer is simple, many are not aware of it and is: when financing the vehicle itself. By far the most well-known form in which the vehicle acts as collateral for a loan is classic vehicle financing. This means that the lender keeps the vehicle registration document until the loan has been fully repaid. The bank then owns the vehicle.
If there are payment difficulties with the loan, the lender can quickly fall back on security in the form of the vehicle in case of doubt. The vehicle is particularly popular as security because the lender has real equivalent value through the vehicle – even if the installments themselves are not (or no longer) serviced. Since the bank is the owner until the installments are paid off, the lender could sell the vehicle in order to pay off the remaining debt.