What do you need to know when you want to finance a car?

11/10/2023

Nowadays, most private vehicle purchases involve financing, a service that dealerships commonly provide. In these cases, although the offer and procedures are formalised at the dealership, the financing is provided by a partner bank, with which you will sign a consumer credit agreement. Abre en ventana nuevaThe bank must comply with the obligations set out in the regulations, as is the case with any loan, and therefore must do the following.

• Assess your solvency, that is, your ability to make instalments.
• Fully explain to you the conditions of the credit being offered,  which include the instalments to be paid, extra services tied to the loan and any expenses or commissions linked with the financing.
• Provide you with precontractual details in the form of the European standardised information sheet, which must include the same conditions that will be established in the contract.

With this in hand, it’s important to evaluate the conditions and characteristics of the loan before signing it and compare the credit with other options, such as car loans offered by other banks.

If the financing is offered by the dealership, it usually has some particularities that you should be aware of before signing.

• Banks often offer discounts on the asking price for financing the purchase, but be careful, this doesn’t mean that buying the car on credit is cheaper than paying upfront. To work out the car’s price including the financing cost, look at the overall purchase price, which covers all the payments made towards the car and its financing, i.e. the down payment, financing fees and expenses, monthly instalments, and the final instalment, if there is one.
• There is usually an initial instalment (paid when the contract is signed), monthly instalments (paid for the agreed term) and a final instalment, which is, in most cases, much higher than the monthly instalments. It’s important to crunch the numbers before buying a car, looking not only at the initial and monthly instalments but also the hefty final instalment.
• Other products or services relating to the credit agreement are often offered alongside the financing, such as an insurance policy to guarantee the loan. Examine these services and whether they are right for you or not.
• Most financing deals include tie-in periods requiring you to keep the loan for a minimum period. If you pay it off early, you could face a penalty — perhaps losing any discount applied to the vehicle’s price.

•  It is important to take this into account if you plan to repay the loan before its established due date.

In short, you should pay attention not only to the car’s features, but also to the financing conditions. Moreover, be sure to compare any offer with other alternatives, such as financing from another bank.

Remember, if you want more information about the applicable regulations for this or any other banking product, you can find it using the EncuenTRAAbre en ventana nueva tool.