In September, it was a year ago that car dealers had to stop offering car loans at 0% interest. This was a measure by the AFM regulator because they thought the offer was misleading. An interest rate of 0% implies a loan without costs; that is a utopia because borrowing money always costs money. Further illustration at http://www.vinylrecordscollector.co.uk/priority-buy-here-pay-here-cheap-buy-here-pay-here-so-easy-convenient/
This also applied to the 0% car loan. In practice, this type of loan had hidden (high) costs for the consumer. According to the rules of the AFM, this is not permitted, hence the prohibition.
What are the consequences for car dealers 1 year later? The car industry is on the rise again after the economic crisis and the consumer uses loans, but there is a clear shift in that.
Car loan: personal loan growth compared to ongoing Good Finance
As a result of the historically low-interest rates, a clear shift can be seen from continuous Good Finance to personal loans, certainly when you look at financing a car. Consumers opt for security, and that offers a personal loan. You pay the same charges every month; you will not be faced with any surprises and the loan will be paid off and you will be debt-free on the end date.
But especially the low interest that you can fix is the reason for choosing a personal loan. The interest rate has not been this low before, so before it may rise again you want to profit from this favorable interest rate for the entire duration.
For a car loan, a term of 5 years is the most frequently chosen term. In this way, you prevent that you are still paying off your loan while your car has already been written off. A duration of 5 years corresponds quite well with the economic life of a car.
What forms of financing do car dealers offer?
Naturally, car dealers also offer consumers multiple forms of financing. You can choose to lease a car, purchase on installment or use the 50/50 deal. Car dealers often work together with financing providers; in that case, the car dealer does not arrange the financing himself, he acts as an intermediary. In this role, he may not advise the consumer.
Leasing a car means choosing convenience. Basic repairs are covered by the lease contract and are therefore not for your own account, which is the case if you have purchased the car yourself. In the case of a lease, you are not the owner of the car. You rent it, as it were.
You pay a fixed monthly amount that is laid down in the lease contract. This agreement is registered with the BKR. Many consumers are not aware of this. It does not have to have any consequences, but if, for example, you want to take out a mortgage, this amount does play a role in the amount of your mortgage; all running Good Finance are taken.
Purchase by installment
Even in the case of buying your car on installment, you are not the owner of the car. You are only after the last installment has been paid. Purchase by installment means that you can drive the car directly and that you pay it in installments. This construction resembles a loan with the major difference that you are the direct owner of the car with a car loan. And the calculated interest is a lot lower.
The 50/50 deal is, in fact, a combination of different forms of financing. You pay the first 50% when you purchase the car, the remaining 50% is a loan that you repay within an agreed period of 12-48 months at an agreed interest rate. A clear construction. But what is the calculated interest rate for the loan part? At the moment, some car dealers seem to want to win over consumers again with offers of 0% interest.
Do they believe that this is permitted if the interest rate only applies to half the amount? Or is this a twilight zone and do they stay within the law? The risk for the consumer is that many people do not save for the final installments, which means they cannot pay the final installment in full. The loan then changes from a cheap to an expensive variant.
Take out a car loan
If you want to buy a new car it is important to keep your head and not to succumb to beautiful stories. Often “too good to be true” is really too good to be true.
Take out a responsible loan with a reliable professional party where no hidden agenda is part of the agreement. Calculate the favorable monthly costs via our calculation tool if you opt for a car loan with us.
Do you have any questions? Our Good Finance advisors are happy to answer them. They are happy to make a customized proposal for you. You do not pay any consultancy and closing costs for this.