After real estate, the purchase of a car represents the main budget line that requires the use of credit. Like real estate, cars are indeed more and more expensive. It is difficult, if not impossible, today to pay cash for such a purchase.
Several methods of financing are nevertheless possible: conventional loans, but also rental with option to buy or long-term rental. The point on the best solutions.
The different financing options
Like nearly 60% of French people, you may not have the possibility of buying your car in cash. When buying a car, new or used, you will probably use one of the many forms of credit available in France today.
Several options are available to you to finance this purchase:
- personal credit;
- affected credit;
- long-term rentals with purchase option.
Today, financing through long-term leasing covers 40% of new car purchases, ie as much as car loans, with personal loans representing the remaining 20%.
Personal auto credit: a classic consumer loan
You can absolutely take out a personal loan for the purchase of your vehicle. This consumer loan is indeed an unallocated credit, which allows you to finance your projects, with the exception of real estate.
If your repayment capacity is sufficient, the funds will be released by the bank or credit institution and transferred directly to your account.
With repayment periods substantially identical to those of auto credit, personal auto credit (also called personal loan) allows you to finance the purchase of your new vehicle.
Personal credit can be judicious in particular for the acquisition of a car requiring some repairs. The sum is indeed made available to the borrower who can thus buy his vehicle in cash and finance the repairs with a share of the loan.
Only downside: repayments are due as soon as the amount borrowed is made available to you. In addition, the personal loan generally comes with a higher interest rate than the auto loan.
Affected auto credit: the most common solution
This is the most widespread credit, and for good reason, it is certainly the most sensible credit for the acquisition of a new car.
Unlike the personal loan, Auto Credit is an “assigned” loan. In other words, the funds granted can only be used to finance the purchase of your vehicle and nothing else. The amount released is paid directly to the dealer by the bank or credit organization upon delivery of the car.
Reimbursement of your credit begins as soon as you are in possession of your new vehicle. Note that if the personal contribution remains recommended in order to reduce the monthly payments of the credit, it is quite possible to take out a loan covering 100% of the purchase.
This type of credit can be granted by a bank, an independent credit institution or linked to the manufacturer.
Advantage: the reimbursement of your assigned Auto Credit only begins when the vehicle has been delivered to you. If the sale is cancelled, even at the last moment, the credit is cancelled, thus saving you from having to repay a loan that has not served you.
Finally, you can resell your car whenever you want, even while on credit.
Ballon Credit: an interesting mix
A credit halfway between LOA and personal credit? Almost. The Ballon Credit is indeed a type of financing mix between these two credit formulas.
How it works ? It’s very simple: it is a rental with very low monthly payments and a mileage package not to be exceeded. At the end of the contract, you have the possibility of buying back the car on the basis of the sum defined at the start. This sum is called the “balloon”.
Clearly, you must pay monthly installments until the last month. Three options are then possible:
- restitution ;
- renewal with a new car;
- purchase by paying the “balloon” in cash.
One of the advantages of this credit formula is that you have low monthly payments. Negative point, you are not the owner of the vehicle.
Rental with purchase option (LOA or leasing):
It is not strictly speaking a car loan. However, this new banking product may be offered by certain credit agencies as a financing solution for acquiring a vehicle.
The principle ? Rent a vehicle and choose from three options at the end of the rental period: return the vehicle, renew the rental or “exercise the option to purchase”, i.e. buy the vehicle.
By opting for rental with option to purchase (LOA) you immediately have a car by paying fixed monthly payments, the amount of which is known in advance. This form of “credit” has the advantage of having a car without making a contribution.
However, it also has drawbacks. Indeed, you pay rent until the exercise of the option, accompanied by the payment of an additional sum if you wish to become the owner. But if you decide not to buy, you will end up paying rent in vain.
With a conventional credit, on the other hand, the vehicle would belong to you after the repayment of the sum borrowed.
Long-term rental (LLD) for controlled costs
Do you want to change your vehicle regularly, without having to worry about the conditions of its resale? Are you looking for a simple solution and controlled costs? Why not turn to a Long Term Rental (LLD)?
This is a method of financing which is tending to develop, in particular thanks to strong incentives from manufacturers.
By opting for an LLD the monthly payments are generally lower than for a conventional loan. In addition, the contract covers maintenance costs, which is not negligible in the event of a breakdown!
However, this type of credit has a number of disadvantages that should not be overlooked:
- While it allows you to rent a car for a long period, it does not offer you the possibility of buying it at the end of the rental period.
- On the other hand, the first rent is often high and the limited mileage is a source of overbilling in case of overrun. Indeed, if you choose the Long-term rental, the rent of your vehicle will be calculated for a mileage and a determined duration that you will choose according to your needs. However, you can adjust your contract according to the actual use of your vehicle.
- Also note that a premature breach of contract is accompanied by penalties.
Leasing: a solution for professionals
Does your business require you to travel a lot? Do you want to rent your professional vehicle while retaining the possibility of acquiring it one day? Why not opt for Leasing?
It is, neither more nor less, a rental with option to purchase aimed primarily at professionals, with the possibility of becoming the owner of your vehicle at the end of the rental.
Leasing is in all respects identical to the LOA, with the exception that it does not allow the termination of the contract before term. Note that a Leasing is taken out most of the time for a period of 36 to 48 months before renewal, and up to 60 months for utilities.
Conclusion
In summary, long-term rental (LLD, LOA or leasing) is primarily intended for people wishing to change vehicles regularly. Unlike classic car credit (allocated or not) which remains particularly competitive for people who plan to keep their vehicle for more than 5 years.