The system of lending with residual payment has been actively promoted recently, but is not widely popular. What is a loan with a residual payment, what is the catch? Let's take a look at the pros and cons of this type of car loan.

According to statistics, in the Russian Federation every second car is bought on credit, so it is important for manufacturers to provide a more attractive offer for the purchase of their product. Such a proposal is a car loan program called buy-back, which is actively implemented in Europe and America. In simple terms, this is a car loan with a remaining payment or a loan with a car buyback.

A loan with a residual payment is attractive due to its low monthly payment; it can be several thousand when buying a car even for 2 million. And a number of questions immediately arise. How is this possible? What's the catch? Is it profitable or not? What is the remaining payment on a car loan?

The unique thing about a car loan with a residual payment is that after 3 years the dealer can buy the car back, that is, the dealer pays the remaining payment and makes a down payment for a new car or returns the funds to the borrower. Let’s figure out whether it’s profitable or not to take out a car loan with a residual value.

A car loan with a remaining payment is designed for 3 years of payment. During this time, the borrower pays interest on the car loan and partially the cost of the car, because there is that same remaining payment. The size of the mandatory down payment is set by the dealer - this is at least 15% of the price of the car, and the residual value is determined by the borrower himself, it can reach up to 55% of the cost of the car.

The entire period until the car loan with a residual value is paid off is repaid in equal installments, and a large residual payment remains for the last month.

The main advantages of a car loan under the buy-back program

How to pay the residual value for a car

At the end of the car loan repayment, a significant amount of debt remains; this remaining payment must be paid in one go. There are three options for closing a car loan with a residual value.

Cash repayment

The borrower can make the remaining payment on the car loan using his own cash. Having fully repaid the car loan, he becomes the full owner of the purchased car, that is, after this, the vehicle can no longer be redeemed back to the dealership where it was purchased.

Buying a car from a dealer

If the client does not have the required amount of funds, he can sell the car to a dealer. Here there are many disadvantages and few advantages, but more on that a little later. Let's say the manufacturer takes back the car, part of the proceeds goes to pay off the remaining payment on the car loan, and the remaining money is to be used as a down payment on a new car. Thus, they sign the borrower up for a new car loan, but what is a plus is that it’s a new car again.

Car loan extension

I don’t want to part with the car, but I have nothing to pay off the remaining value of the loan. What to do? In this case, you can extend the loan agreement for another two years, during which time you need to repay the loan in full. Here you need to negotiate with the bank so that they agree to a meeting. The car loan lender is not obliged to renew the agreement and may well refuse the client.

This method is definitely not profitable. Over the three years of repaying the car loan, the borrower has paid most of the interest, and the loan amount is minimal, so over the next two years, the principal debt must be fully repaid plus the interest rate. The rate now will probably be higher, because the lender is already dictating new terms for repaying the loan, and if you don’t agree with them, they may completely refuse to extend it and you will have to look for funds to pay off the debt.

Additional option

You can make the remaining payment on a car loan by taking out a consumer loan for the required amount from another lender. This option is beneficial to use if you have no money, but want to keep the car.

Pros and cons of a loan with a residual payment

Having determined the positive and negative aspects of a car loan with a residual payment, we can find out whether it is profitable to take it or not. And finally, we find out what the catch is. Pros:

• Low monthly payment.
• The opportunity to get a new car in three years without a large investment.

Disadvantages of the loan program:

• Relatively high interest rates.
• The dealer does not guarantee a refund.
• The borrower is not the owner of the vehicle as such.

What's the catch with the buy-back credit program?

Now let’s get to the fun part about the car loan deal with residual payment. What's the catch? There are several of them, and without knowing about them you can lose big.

In fact, the manufacturer is not obliged to buy back his car - this is at his discretion. The purchase and sale agreement specifies only one figure - the maximum or minimum price for which the car can be returned to the dealership. Before purchasing, specialists will assess the condition of the machine; if there is any damage or noticeable wear, the price will be significantly reduced.

If the condition of the car does not impress the appraiser at all, the dealer may refuse to buy it. Another disadvantage is that the purchased car model can significantly drop in price.

In any case, the return will occur at a cost much lower than the market price. It happens that the amount returned by the seller is not even enough to pay the remaining payment on the car loan, let alone the down payment. Then the client has to pay the missing amount out of his own pocket. As a result, the person is left without money and without a car.

Conclusion

Taking out a car loan with a remaining payment is not profitable if you need a permanent car. Such lending is suitable for amateurs who have excess capital and can afford to change cars frequently and drive mainly new, expensive cars. Although one can argue here, you can often and profitably change cars using a leasing program.

Every day the speed of human life is steadily increasing. Accordingly, the mobility of each of us increases. A personal car has long ceased to be a luxury and is often a necessity. However, not everyone can afford such a purchase. A car loan can be a good solution in this situation. The pitfalls of this phenomenon became the topic of our article today.

Today, almost every financial institution offers a loan for the purchase of a personal “iron horse”. But how can you be sure that you have completed the procedure? Pitfalls when receiving money or the car itself can be hidden so skillfully that you can only discover them once you begin to fulfill your obligations. To avoid bondage, you need to carefully consider each stage of car registration.

Consultation

So, you have decided to take out a car loan. Pitfalls are prepared for you already at the time of your first consultation. In 90% of cases, you will be offered to draw up a loan agreement for a so-called promotional car. And they will do everything very quickly and right in the salon. Thus, by chasing the apparent cheapness, you have a chance to drive away from the dealer in a car that you did not even consider as a purchase.

By taking out a car loan from a bank, you will be free from such impositions.

Signing the contract

We continue to study the pitfalls of a car loan. The next stage is the price of the car. The price list most often indicates the cost of the so-called basic configuration. Therefore, to begin with, it is worth finding out the full amount, taking into account various “makeweights”. This will be the real price that you need to focus on. The cost of the car indicated in the leaflet is in 99% of cases nothing more than an advertising ploy.

In order to force the client to purchase a more expensive car, many managers argue that having above-average equipment is a requirement of a banking institution. Most often this is not true. Almost the only point that employees of a financial institution can insist on is the installation of an anti-theft alarm.

Where can I get a car loan? Pitfalls can await you at every turn. Therefore, before signing the contract, try to carefully study every letter of it. Moreover, it is best to do this not at the place of registration, but at home, in a calm environment. Ideally, you should involve a lawyer who understands such things in the process. If everything is honest and transparent, then both the bank and the car dealership will give you a copy of the standard agreement without any questions for detailed study. If such a request was denied, think about it! The lender probably has something to hide. Is it worth taking out a car loan in such a place? That's your business.

Loan offer options

Here are some more pitfalls of a car loan. Is it better to get it at a car dealership or at a bank?

On the one hand, when drawing up a loan agreement directly in the salon, you are limited to choosing a bank. You can get a loan only from the credit institution with which the dealer has an agreement. It is far from certain that the proposed conditions will be the most favorable. On the other hand, the process will take much less time, and minimal documents will be required.

At the same time, when applying for a loan from a bank, you will choose from a standard package of services. And by signing a contract directly at the car dealership, you can count on some promotional offers. Dealers quite often develop such programs together with banks. So before signing the papers, it is better to calculate all the options.

"Interest-free" loan

So, you have decided to take out a car loan. Pitfalls (what to fear) are hidden here very skillfully. Take, for example, the tempting 0% interest rate. As you understand, the bank is not a charitable organization, which means it will not operate without profit. Accordingly, it cannot be. All profits allegedly not received by the financial institution have long been included in various additional commissions, the initially inflated cost of the car, and the costs of paperwork.

• loan term - no more than 12 months;
• down payment - at least half the cost of the car;
• mandatory insurance in the place indicated by the bank.

In addition, a variety of requirements can be added, which ultimately cancel out the savings.

To avoid getting into such a situation, ask the manager to write down all your registration steps step by step on a piece of paper. At the same time, enter as accurately as possible all the amounts for the cost of forms, permits, insurance, account maintenance fees and similar payments. Take a break for a day or two and take an interest in similar offers from other banks. Perhaps your “interest-free” loan will not be so profitable.

Fines

To avoid troubles in the future, try to immediately find out what fines the bank can impose on you and for what. You should not sign an agreement that provides for the accrual of a huge penalty for every minute of late payment. Assess your financial strength realistically. You also need to take into account the possibility that the financial flow of incoming funds may decrease. For example, you or your beloved cat gets sick. Or maybe the company you work for will cease to exist altogether. In this case, you will have to contact the bank about restructuring. Immediately ask whether this is possible and how exactly this process will take place.

Some banks impose a penalty for early loan repayment. After all, in this case they will not receive the profit they expected. Consider whether such conditions are suitable for you.

Sometimes credit institutions impose fines for late notification of changes in personal data. This means that if you changed your job, phone number, or suddenly got married/divorced, the bank should know about it. Failure to notify in a timely manner may result in the imposition of a fine, penalty, as well as the requirement of the bank to immediately repay the remaining amount of the debt.

Related costs

Where else could the pitfalls of a car loan be hidden? In an attempt to attract as many clients as possible, many financial institutions or car dealerships hide information until the last moment about what other expenses the client will have to incur. And they can be like this:

• fee for opening a bank account and its maintenance;
• various insurances;
• payment for converting the loan amount;
• various fines;
• bank commission for transferring funds to a car dealership;
• payment for bank services for registration and consideration of the application;
• conducting credit business.

Insurance

Have you changed your mind about taking out a car loan yet? Pitfalls await you in terms of car insurance.

First of all, be prepared for the fact that you will not be able to contact the insurance company of your choice. You will be obliged to cooperate with the company that has an agreement with a car dealership or bank. In addition, the bank may require insuring not only the car, but also other risks:

• your life and health;
• risk of loan non-repayment in case of loss of source of income;
• other risks.

Of course you can refuse. But who will guarantee that you will receive a loan in this case?

There are a few more nuances when taking out insurance:

1. If you take out a regular CASCO policy, the insurance company takes into account that the value of the car decreases every year. Accordingly, the policy will cost less from year to year. In the case of a credit car, the amount of the insurance premium will remain unchanged for the entire loan term. That is, the car “gets old”, but you will still pay as if it were new.
2. Also in this case there is no chance to receive a bonus malus. This is a discount that insurance companies provide for breaking-even driving. No matter how much driving experience you have, this will not affect the cost of CASCO credit car in any way. You will have to pay in full.
3. In addition, if you take out CASCO for a car loan, you lose the opportunity to pay insurance premiums in installments. In this case, the entire amount will have to be paid at once.

Summarize

If you carefully read our article, then you already know what pitfalls exist in a car loan. The only rule for those who do not want to get into trouble is one thing - do not rush. If you previously lived without a car, then you can certainly hold out for a few more days. This time is just enough to carefully (or better yet, with a lawyer) study the contract and read everything, even the smallest letters. In addition, you need to carefully recalculate all the numbers and determine the amount that the car will ultimately cost you. Remember: if the euphoria from the upcoming purchase does not blind your eyes, you will not be afraid of any pitfalls.

The pitfalls of car loans in car dealerships is a question of interest to every car enthusiast who has decided to purchase a vehicle on credit. After all, it’s no secret that credit institutions, while offering various lending programs, are in no hurry to talk about their disadvantages. The lender's primary task is to interest the buyer, and for this it is necessary to highlight his positive, rather than negative, sides as much as possible.

The article provides information about the features of car loans in 2017-2018, the tricks of salons that you can fall for when drawing up a loan agreement, as well as issues relating to such aspects as insurance and collateral. In addition, you can find out what disadvantages of a car loan you need to consider before making a final decision.

What you need to know about car loans

A car loan is a program that provides the borrower with a certain amount necessary to purchase a car. Like other types of loans, say, for equipment or housing, automobile loans require fulfillment of the conditions established by the contract.

Agreements of this kind are classified as paid, fixed-term and bilateral. This means that, firstly, the money received in the form of a loan must be returned, secondly, this must be done within a certain period of time, thirdly, if one of the parties wishes to change the terms of the agreement, this can only be done if there is consent of the other party.

At the same time, it should be taken into account that not only the funds received are subject to return, but also the accrued interest. Moreover, some agreements provide for the payment of a commission. And in case of non-compliance with the terms of the contract, you will also have to pay a fine.

Differences between loan programs

Today, there are many lending programs that provide various conditions for obtaining a car loan. The main differences between these projects are as follows:

1. in the amount of the annual interest rate;
2. during the term of the loan agreement;
3. whether there is a requirement to make a down payment, as well as its amount;
4. the presence of additional payments, such as commissions, fines, penalties, as well as other types of penalties;
5. the need to secure a loan;
6. in a debt repayment scheme.

Features of car loans

Although a car loan is a subtype of loan, it has some differences from other types of loans. Thus, in concluding a transaction, not only the parties to the agreement in the form of a lender and a borrower, but also a car dealership or dealer take part. The latter's task is to make every effort to ensure that the loan is issued and the vehicle is sold. Only if the contract is successfully concluded will the car dealership make a profit. The issue of the client’s benefit is not a priority for the salon, so you should evaluate the positive and negative aspects of the transaction yourself.

Another feature of a car loan is the fact that banks, under agreements the subject of which is a vehicle, most often require collateral or insurance. This is justified by the fact that during operation the car may deteriorate. This is not to mention the changes in the vehicle that may occur to it as a result of a traffic accident.

Underwater rocks

Despite the fact that credit organizations present car loans almost as a charitable act, they have much more disadvantages than advantages. Each program, including preferential ones, has its own pitfalls, the features of which will be discussed further.

Tricks of car dealerships

The first thing to consider is that the profit of a car dealership directly depends on the success of the credit transaction, so its employees will make every effort to ensure that it is concluded. To achieve this goal, various kinds of tricks and tricks are often used.

As a rule, car dealers cooperate with a limited number of banking institutions, so you should not count on being offered the most favorable conditions. You will have to conclude an agreement with the credit institution that works with the car dealership. In this case, the client can simply be told that other banks refused to issue him a loan due to his non-compliance with the lender’s requirements.

Quite often, car dealerships take such a step as inflating the price of a car, justifying this with a low interest rate on the loan. As a result, you pay less interest, but the loan itself is larger. This is equivalent to purchasing a vehicle at the regular price, but with higher interest rates.

Car as collateral

To ensure repayment of the debt, banks require collateral. As a rule, this is the vehicle being purchased. Less commonly, the collateral may be real estate, jewelry, or other vehicles owned by the borrower.

What are the consequences of providing collateral for the borrower:

• the property serving as collateral cannot be sold during the period during which the agreement is valid;
• In case of failure to comply with the terms of the agreement, the creditor may demand repayment of the debt from the collateral property.

Note! Having decided to take out a loan secured by collateral, you need to be sure that in the future it will be possible to fulfill it in full. If your financial situation has changed for the worse, there is no need to delay the debt repayment procedure; it is better to try to agree on its restructuring as quickly as possible.

Insurance

Often one of the conditions for issuing a loan is obtaining insurance. The buyer is given the opportunity to draw up an insurance contract independently or with the help of a credit institution. In the latter case, insurance costs are included in the loan amount.

Note! Cases when a borrower finds out about insurance after concluding a transaction are quite common, so before signing the contract, you must read all its sections. If the essence of any points is not clear, the borrower has the right to demand clarification.

Hidden fees

Hidden fees usually refer to commissions. Payment of a commission may be provided for the provision of the following services:

• issuing a loan;
• accepting monthly payments;
• performing operations on a credit account;
• repaying the loan ahead of schedule;
• provision of informational information.

It is necessary to pay special attention to the presence in the contract of a requirement to pay a commission, since such a payment can significantly increase the loan amount.

When choosing a loan program, experts advise following these recommendations:

• Don’t get hung up on one project, work on several options. Now each credit institution has its own website, which provides information about the terms of the loan and the requirements for the borrower. Compare several options and choose the most profitable one;
• before signing the agreement, carefully study all its clauses;
• be careful when providing collateral and do not forget about the restrictions it entails;
• carefully study the terms of the contract, especially those related to interest rates, commission payments and penalties.

A car loan is a service that allows you to borrow money to buy a car. For some citizens, using it is the only way to acquire a vehicle.

Dear readers! The article talks about typical ways to resolve legal issues, but each case is individual. If you want to know how solve exactly your problem- contact a consultant:

APPLICATIONS AND CALLS ARE ACCEPTED 24/7 and 7 days a week.

It's fast and FOR FREE!

Are banks happy to issue car loans, assuring the borrower that the service will only bring benefits? However, is this really so? We should not forget that all credit institutions strive to significantly increase profits.

By offering a seemingly lucrative offer, companies will not miss out on the benefits.

To know in advance whether the tariff plan is as attractive as it seems at first glance, it is necessary to study the pitfalls of a car loan.

Features of obtaining a loan

To understand what affects the profitability of an offer, it is necessary to identify the features inherent in this service.

A standard car loan has the following properties:

• issued for a long period of time;
• requires for the entire period of the contract;
• issued only after making a down payment;
• the bank charges interest for the use of funds;
• The car remains until the debt is fully repaid.

Some properties may change depending on the nuances of the offer. This can significantly affect the final cost of the service package.

To figure out which car loan to take out, you need to study how changing each parameter affects the cost.

Pitfalls of a car loan

Analyzing their own experience of interacting with the bank and taking into account the information provided by friends, people who took out a car loan understand that the cost of the offer can vary significantly.

The overpayment on a loan received for the same car in the same bank can be reduced or decreased by several points for different people. You can find out the reason for the change in value by analyzing the car loan in detail.

Increased insurance premiums

Today, most banks force their borrowers to purchase CASCO insurance. However, different banks have different insurance requirements.

So, if a number of companies allow the client to independently choose a suitable organization for purchasing CASCO insurance, other companies establish a strict list of insurers for purchasing the necessary service.

Practice shows that the fee for purchasing a policy in such institutions is significantly higher.

When starting cooperation with organizations, a person will be forced to significantly overpay on the loan. The total cost of the loan may increase several times.

To avoid this, it is necessary to find out in advance the specifics of purchasing insurance and give preference only to those banks that allow the client to make an independent choice of insurer.

Life insurance

Providing a loan for a long period is a risk for the bank. For this reason, the organization strives to protect itself in every possible way. One way to do this is by assigning responsibility to the borrower to purchase the policy.

According to current legislation, a bank cannot force a client to buy a service without fail.

However, institutions have learned to circumvent this ban. Most banks, wanting to protect themselves in this way, will reduce the interest rate on the loan if the client agrees to buy the policy.

Some companies, bypassing the ban, may refuse to provide capital if the borrower does not want to purchase insurance.

The client can use the bank's need for protection to his advantage. By choosing an institution that reduces the interest rate for purchasing insurance, the borrower will protect himself from unforeseen situations.

You won't be able to save money when using this offer. The cost of insurance fully covers the discount that the bank is ready to provide.

Without CASCO

Most borrowers perceive the need to purchase CASCO insurance negatively. Expensive insurance in most cases does not bring any benefit, but it significantly increases the final cost of the loan.

Having analyzed customer sentiment, some banks wishing to expand their audience are ready to accommodate borrowers halfway. By carefully analyzing the market, a person will be able to find a package of services that can be used.

Experts do not recommend giving up insurance. The fact is that refusal of CASCO increases the risk that the bank takes.

If the borrower damages the vehicle before paying the company and is unable to repay the capital, the lending institution may suffer losses. The risk of such a development is small, but still exists.

To compensate, banks significantly increase interest rates. The final cost of the loan without CASCO may be higher than the price of the classic offer.

Interest-free loan

While studying the market, a potential client may come across an offer that promises to receive funds without overpayment. Experts do not advise thoughtlessly agreeing to use such a package of services.

The fact is that in most cases they are offered only for cars that are not in demand. In this way, car dealerships cooperating with banks are trying to sell unused goods.

A customer choosing an interest-free loan will significantly narrow the choice of vehicles available for purchase.

In addition, lending conditions will become more severe.

Reduced rate

– another way to attract customers, which banks often use.

Borrowers who see a lucrative offer forget that the amount of overpayment is not the only parameter of a car loan.

Experts do not recommend using offers whose rates are significantly lower than the market average. It should be remembered that banks operate to make a profit. The income that companies lose by reducing the level of overpayments, they will certainly compensate.

To do this, companies can use the following methods:

• charge hidden fees;
• force the client to purchase CASCO insurance at specific institutions;
• charge an account maintenance fee.

The final overpayment on a loan with a low interest rate can be significantly higher than the cost of the classic offer.

Currency selection

Today, banks are ready to provide funds not only in rubles, but also in foreign currency. However, the interest rate on such offers may differ from that of a classic car loan.

Usually it is a little lower. However, do not forget about the difference in current rates and their changes.

No down payment

To obtain a car loan, the client must demonstrate solvency. To do this, companies oblige the borrower to make an initial payment.

It represents a certain percentage of cash from the cost of the car. Typically its size is about 20%.

When purchasing an expensive vehicle, the final payment can be significant. Not every person is able to quickly find the necessary amount. However, banks are again ready to meet the client halfway and provide the required amount of funds without an initial payment.

In this situation, the same rule applies as in the case of CASCO insurance. The bank deliberately takes risks, which allows it to significantly increase the amount of overpayment.

For this reason, experts do not recommend using such offers. A down payment can also be used as a way to reduce the amount of overpayment.

By making more money as an initial payment, a person can count on receiving capital on more favorable terms.

Registration at the bank

If a client decides to take out a car loan from a bank, it is necessary to carefully analyze the market. With careful study, you can identify offers whose use will allow the borrower to save money.

Banks that are ready to provide car loans on favorable terms:

Registration in a car showroom

Today you can get a car loan not only from a bank, but also from a car dealership. Applying for a loan at the time of choosing a car allows you to save time on visiting a credit institution.

However, it should be remembered that the offer has all the properties of a classic car loan. It also has a number of nuances that you need to know about in advance.

Credit and insurance services

When contacting a car dealership, the client must understand that the organization acts only as a seller. The bank with which the company cooperates will provide funds on loan.

For this reason, such a car loan will not have significant differences from the classic offer.

A person will still have to make a start-up payment and purchase insurance.

Real and declared cost

When deciding to buy a car on credit, the client must carefully read the contract. It should be remembered that organizations do not always communicate all the nuances of cooperation.

The actual cost of the loan may differ significantly from the stated cost.

Please be aware that institutions may charge additional fees and account maintenance fees. Similar features are inherent in a car loan, regardless of where it was issued.

Car dealerships ready to provide car loans:

How to get around the problems?

If a person decides to take out a car loan, pitfalls during receipt are the main obstacle that he may encounter. To circumvent possible problems, no specific knowledge is required. It is enough to familiarize yourself with current information on the topic.

After all, because of them, you can overpay twice, taking out a loan with the most seemingly small percentage.

Ilya Kulik is with you, and today I will help you understand the intricacies of car loans! Ready? Go!

Car loan. What do you need to know?

First of all, you need to understand that a car loan in its essence is no different from any other loan and is a paid issue of a certain amount with the condition of repayment on time. The fee for issuing a loan is primarily interest. Often various commissions are added to them. And this scheme always works, even if the advertisement says that the car dealer provides installment plans without overpayments.

Further, it should be understood that the goal of any credit organization, as a company, is to make a profit. Therefore, any loan offer, even seemingly on the most fabulous terms, is primarily beneficial to the lender. It won't work for free.

How are loans different?

Any loan, including for the purchase of a car, can be characterized by several parameters, on which the borrower’s overpayment, as well as monthly payments, will depend primarily:

• annual interest rate;
• loan terms;
• down payment amount;
• additional payments: commissions, penalties, mandatory insurance and more;
• degree of security for debt repayment;
• payment scheme.

By combining these parameters, banks create conditions that will allow them to obtain maximum benefits with minimal risks. But at the same time, they do not forget that their loan products are as attractive as possible for the client. At least at first glance.

Car loan: nuances and features

A loan for the purchase of a car differs from a regular consumer loan. Firstly, very often the loan is issued with the participation of a seller - a dealer or a car dealership, who is interested in his own profit, and not in the benefit of the client. Therefore, it is possible that some of the money will have to be spent due to his participation.

Secondly, cars are now expensive, and the likelihood of damage during operation is very high - how many accidents happen every day! Therefore, in most cases, banks require additional guarantees of fulfillment of obligations by the debtor: collateral, which, as a rule, is the purchased car, various insurances.

Thirdly, there is currently a government program for preferential car loans. There is probably no trick to look for here; the advantages are truly tangible. But we must remember that the terms of participation are not suitable for everyone and you still won’t get 0% overpayments. This is a benefit, not charity.

Free legal advice:

Where to expect a catch and how not to get into trouble?

In order not to fall for marketing tricks, you need to know the intricacies of car loans, which people often do not pay attention to, and then are horrified at how they agreed to such enslaving conditions. Any auto forum contains various stories on this topic. First, let's talk about the specific points for car loans.

Car dealer tricks

I'll start with the participation of car dealerships in issuing loans. Car sellers usually cooperate with a limited number of banks, and sometimes with only one. Mutually beneficial cooperation! Therefore, you should not expect a variety of offers, and therefore some profitable ones.

In addition, sometimes, as a result of an unspoken agreement, the car dealer submits your application for a loan only to “his” bank, and tells you that supposedly, out of all the others, a refusal was received, and only one approved it. There may also be inattention or negligence of car dealership employees when submitting your documents to the bank, which can also lead to a refusal to issue a loan.

It is also possible that the price of a car may simply be simply inflated when the “most favorable” loan conditions are provided. That is, the buyer will overpay less interest on the loan, and in total will pay the same amount as under another loan program without special offers, if not more.

Pledge

For car loans, many banks require collateral in the form of the purchased car. Much less often, you can pledge any other property: another car, real estate, and, occasionally, jewelry.

Free legal advice:

There is nothing wrong with a pledge in itself, but such an agreement means that if you fail to fulfill your obligations to repay the debt, the bank has the right to sell the pledged property so that the proceeds go to pay off the debt. In addition, other restrictions follow from this, for example, you can sell a loaned car only with the consent of the lender.

Therefore, when taking out a loan with the condition of collateral, you need to be 100% sure that you will be able to pay on it. And if, due to unforeseen circumstances, you have lost the ability to repay your debt on time, before the debt arises, contact the bank to restructure the loan, or refinance it.

Insurance

Often, one of the conditions of the loan agreement is to insure the car under comprehensive insurance, as well as life and health, and other interests of the borrower. In this case, insurance premiums are either paid by the borrower independently to the insurance company, or are included in the loan amount.

Often, the client learns that he has insured his life only after signing the contract, which once again makes him remember the need to read all the clauses of the agreement.

Is insurance always required?

You can refuse insurance! With one exception: according to Art. 343 of the Civil Code of the Russian Federation, insurance of collateral, including a car, is mandatory. That is, when a car acts as collateral, you cannot do without comprehensive insurance.

In other cases, the bank, in accordance with Part 2 of Art. 7 of Federal Law No. 353-FZ “On Consumer Credit” is obliged to provide the client with the right to choose at the stage of concluding an agreement, and cannot refuse to provide a loan if insurance is refused. But the bank can quite legally change the terms of the loan, for example, increase the interest rate when the client does not want to take out insurance, under Part 10 of Art. 7 of the same law, if he considers that the lack of insurance increases his risks.

Free legal advice:

Note. In any case, the bank may refuse to issue a loan without explanation. And this is not a violation of the law.

How can a car owner avoid being left without payment in the event of an insured event?

One more nuance regarding comprehensive motor insurance. The fact is that the beneficiary of the insurance is usually the bank. By law, it is mandatory to insure property only for the loan amount. Very often, attention is not paid to this nuance, and the bank is designated as the only beneficiary, while the entire cost of the car is insured. Under such conditions, in the event of loss of property, the lender receives its entire value, even if the borrower had to pay a few tens of thousands of rubles.

In addition, in case of minor damage, the deposit will remain in force, but the client will most likely have to repair the car himself - after all, the insurance payment will go to the bank.

Therefore, it would be most correct to issue a comprehensive insurance policy with two beneficiaries - the bank, which should have the right to receive insurance compensation only in the event of a complete loss of the car and only in the amount of the unpaid loan, and that in addition to the unrepaid debt in the case of “total”, as well as compensation for partial damage must be received by the owner of the car. The wording is complex, but only these insurance conditions are fair.

Overpriced comprehensive insurance policy

The bank usually offers a choice from a very limited range of insurers who have some agreement with it, by virtue of which it receives a certain percentage of the price of each policy purchased by the borrower.

Free legal advice:

Consequently, the cost of insurance will not be the lowest, but, most likely, will be greatly inflated compared to the average market offer, because there is an agreement between the credit and insurance organizations. But know that, according to Part 10 of Article 7 of Federal Law 353, the borrower has the right to independently conclude an insurance contract that satisfies the lender’s requirements in any company.

Commissions and penalties

This is another clause of the contract that banks prefer to remain silent about until the last minute. Often accompanies loans with the most tempting promotional offers.

Commissions can be taken for everything:

And this list is incomplete; the imagination of credit institutions is limitless. Due to such loan collections, the total amount of payments can increase significantly.

And also, the lending agreement often establishes various fines and penalties, often considerable, for the slightest offense, for example, if the borrower is even slightly delayed in renewing the insurance. They also have to be taken into account when choosing the optimal car loan.

Free legal advice:

How to estimate the full cost of a loan?

To take into account the obligatory costs of the borrower, in addition to paying interest on the loan, the total cost of the loan (TCC) is calculated. Until 2008, it was called the “effective interest rate.” The procedure for its calculation, payments that are taken into account when calculating it, and other information are specified in Art. 6 of Federal Law No. 353-FZ.

The PIC is calculated based on all payments by the borrower known at the time of concluding the agreement, including the costs of paying commissions, mandatory insurance, and other expenses stipulated by the agreement.

Information about it must be indicated in a frame in the upper right corner of the first page of the loan agreement in a large, easily readable font. The range of possible PSC for various loan products is indicated on the websites of banks, as well as in places where loans are issued.

Why is knowing the full cost of the loan not enough to select a loan?

It should be taken into account that the total cost reflects the overpayment associated with real payments, but does not show how much the borrower will overpay for the loan, because this is also affected by the loan term, type of lending and other factors, changes in which are not reflected in the PSC.

And also, when calculating the PSC, expenses caused by early repayment, payment of penalties and other circumstances, the occurrence of which is not precisely known at the time of conclusion of the contract, are not taken into account. Therefore, only loans with the same terms can be compared based on the full cost of the loan.

Free legal advice:

General rules

And now I will tell you about the features common to any loans, without knowing which the borrower often greatly overpays. To understand, you need to understand that various payments to the bank are needed for two reasons:

• to generate profit for a credit institution;
• to cover losses caused by the failure of some debtors under a similar loan to fulfill their obligations.

With the generation of profit, everything is clear: according to economic laws, conditions are established, taking into account all factors, under which the profit will be the greatest. But how is the likelihood of high costs determined?

It's easier to get a loan - it's harder to pay off

When is the risk that the borrower will not repay the debt greatest? When the client did not confirm his income in any way, did not leave a deposit, and did not insure the property. Therefore, overpayments on loans with various manifestations of trust in the client will be higher.

Know: the more concessions made for the borrower when receiving a loan, the more money they will take from him, the more difficult it will be to repay the debt. And the fact that he overpays beyond the usual will go to repay the debt of defaulters, of whom there will be more, the easier it was to get a loan.

Who benefits from special offers?

As I already wrote at the beginning of the article, the bank offers only favorable conditions for itself. If you see any incredible offer in an advertisement, for example, low interest rates, or no down payment, know that this loan also has some other features that are written about in fine print: these may be additional fees, a limited loan period, increased rate, mandatory insurance, bail or guarantee and other nuances described in this article.

Therefore, before applying for a particular loan, you need to find out all the conditions.

Free legal advice:

• consider several lending options - online calculators now help with this;
• carefully read all clauses of the contract before signing;
• remember the restrictions imposed by the pledge agreement (if it is drawn up);
• Pay attention to all terms and conditions of the loan.

Let's sum it up

• overpayment on a loan depends on many factors, each of which must be taken into account;
• Carefully reading the contract before signing is the main condition for getting what you really need;
• loan insurance is optional (except for collateral), but affects the cost of providing a loan;
• collateral is a frequent companion of car loans;
• The overpayment will be greater, the softer the requirements for the creditor, the more comfortable the conditions for him. The opposite is also true.

Conclusion

I am sure that now you know well what you need to pay attention to when purchasing a car on credit and you will be able to choose the most profitable and suitable loan terms for you.

If, after reading the article, you still have (or have) questions, write them in the comments. Or maybe you’ve already had to take out a loan to buy a car? Then be sure to tell me and other readers what pitfalls you encountered, if you came across them, of course.

Once again, a specialist will talk about the main nuances of car loans in the following video: Pitfalls of loans: what to look for when applying. And from the video you will learn how to get your money back if you repay early ;-).

This is where I end for today. Subscribe to the newsletter and share the link to the article on social networks. All the best!

Free legal advice:

P.S.: I took the images for the article here: drive2.ru/r/bmw/. The photos show a BMW X4.

Comments to the article: 2

Very useful article. Thanks a lot.

Igor (Ilya's assistant)

Thank you for your feedback.

Free legal advice:

Leave a comment

• Comments
• Views

• 129 Options for canceling a car purchase and sale agreement between individuals
• 129 Engine number mismatch with title: finally find out the truth
• 119 3 ways to make a title if there are no documents for the car
• 85 How to import a car without customs clearance: “white” and “gray” schemes
• 84 5 schemes for registration of cars by outbids during resale
• 71 What happens if you hit someone else’s car in the yard or in the parking lot and drive away, and how to correct the situation
• 70 Change of registration: how to change documents for a car and whether it is necessary to do it
• 70 How to properly buy a car in Belarus and bring it to Russia - step-by-step instructions of 9 steps + document forms
• 45 How to restore a lost KBM in three ways - step-by-step instructions and how to return the money paid + application forms
• 35 How to buy a car in Kazakhstan with or without export: detailed instructions

• 1344 If a car hits a pedestrian: instructions for all participants in the accident + consequences and procedure for incidents where animals are hit
• 1332 Traffic rules exam for the return of rights after deprivation: who needs to take it and how to pass the test in advance - find out the correct answer to these and other retake questions!
• 1060 Everything about compensation for material damage received in an accident: step-by-step instructions, analysis of non-standard situations + sample documents
• way to avoid liability for leaving the scene of an accident
• 794 How to get a certificate of an accident: step-by-step instructions + completed sample
• 777 How and where to quickly undergo a medical examination: step-by-step instructions + validity period and price
• 754 I’ll tell you everything about the administrative investigation of an accident: when it is carried out, why it is necessary and what deadlines are set
• 730 How is applying for a car loan at a car dealership different from a loan from a bank, and is there any benefit?
• 724 In what cases does mutual guilt occur in an accident and what consequences does it entail for those involved in the accident?
• 673 How to restore a car’s registration – if it is canceled or scrapped

All rights to any materials on the site are protected in accordance with Russian and international laws on copyright and related rights. Any use of text, photo, audio and video materials is possible only with the consent of the copyright holder (Kulik Ilya)

The site owner is in no way responsible for the result of any user actions (including does not guarantee their effectiveness) taken on the basis of articles, comments, recommendations and/or opinions posted on the site kulikavto.ru

Made in Russia

© 2017 | Blog of Kulik Ilya | What you need to know before and after buying a car

Free legal advice:

Pitfalls of car loans at car dealerships: purchase procedure and documents

It's no secret that now the vast majority of motorists drive cars purchased on credit. After all, not everyone succeeds in collecting a large sum to buy a car by saving money from sources of income. Moreover, if you have the opportunity to buy now and pay later, why wait and save money, especially since prices in the automobile market, due to instability in the country’s economy, can rise rapidly. There are many options for buying a car on credit. Applying for a loan directly at a car dealership is the fastest and easiest way. But it is worth remembering that the pitfalls of a car loan at car dealerships also exist, just like in any other procedures related to applying for a loan.

What pitfalls await the buyer when applying for a loan at a car dealership?

It would seem that a car dealership is the same store, without any checks, certificates or other red tape with documents. You come, choose a car, pay the down payment, sign an agreement and drive away in a brand new car. At first glance, everything seems so simple and easy, but in fact there are many nuances and pitfalls here. It’s worth starting with the fact that a car loan at a car dealership is issued by the same banks that have entered into a cooperation agreement with the dealership.

The car dealership is just an intermediary between the bank and the borrower. Therefore, there are no fewer nuances here than when applying for a car loan at a bank, but they are slightly different.

Free legal advice:

1. Cars with discounts - you can buy them on credit.

Quite often, car dealerships announce discounts on cars of certain models. Discounts can be quite impressive, which attracts the attention of buyers. After all, not a single consumer can resist buying a product that he has long dreamed of, especially if it is sold at a reduced price. Typically, credit offers do not apply to cars with discounts, but some dealers offer to buy a car from a car dealership on credit at a discount.

The catch here is that buying such a car will cost the buyer exactly as much as it cost before the promotion, and may cost more than its original cost. As a rule, the loan will be issued at an interest rate that compensates for the decrease in the value of the car. Therefore, it is better to buy cars that are subject to a discount in cash.

2. Car on credit without down payment and overpayments.

In car dealerships you can often find offers such as buying a car in installments. The terms of the promotion are often as follows:

0% advance payment;

0% overpayment on loan;

As a rule, installment plans are arranged through a bank, the term of such lending is fixed, and monthly payments are calculated in advance.

Free legal advice:

In this case, the catch is as follows: the price of a car offered by a car dealership under such conditions already includes the amount of overpayment. Moreover, this amount will be quite impressive due to the absence of a down payment and quick registration. At the same time, the loan term is quite short, therefore, the monthly payment will be large, which not every borrower can afford. As for documents, they are a separate matter.

3. Quick processing of a car loan. All you need is a passport.

Applying for a car loan at a car dealership with a minimum package of documents requires a high interest rate. The profitability of the purchase can directly depend on what documents are needed for a car loan at a dealership.

If a car dealership offers to issue a car loan using a passport or two documents, this is an express car loan. The application will be reviewed within 15 minutes, and the rate on such a loan will be quite impressive.

In order to get the most profitable car loan at a car dealership, you need to choose loan terms that require the following documents:

Passport of a citizen of the Russian Federation;

Free legal advice:

A second identification document (often a driver’s license, but since a person who does not have a driver’s license can buy a car, it can be any other document);

Certificate in form 2NDFL;

A copy of the work record book or employment contract (the copy must be certified by the employer).

In this case, it is highly desirable that the length of service at the last place of work is at least six months, and the salary is such that the monthly payment of the future loan does not exceed 40% of income. Under such conditions, the loan rate may be quite acceptable, but you should not hope for very favorable conditions. It is simply impossible to purchase a car on credit at a car dealership with minimal overpayments.

What other pitfalls do car dealerships encounter when applying for a loan?

In addition to all of the above, you can find many more nuances and pitfalls in car dealerships when applying for a loan. For example, limited bank selection. Some salons cooperate with two or more financial institutions, while there are those where loan processing is available only in one bank. Thus, the potential borrower does not have much choice in the loan program, and often has to choose between a high overpayment and a very high overpayment.

Free legal advice:

The total cost of the loan is calculated from the effective interest rate, which includes all additional fees.

As for insurance, often purchasing a CASCO policy is a prerequisite for obtaining a car loan. It is worth noting that such a policy at a car dealership costs much more than if you purchase it yourself.

How to avoid pitfalls when applying for a car loan at a dealership?

There is a procedure for buying a car at a car dealership on credit, which every car enthusiast should know.

1. You should start by choosing a car. If the range of cars presented in the showroom does not suit you, go to another car dealership. Try not to fall for the tricks of the seller, who, seeing that the potential buyer has not found the right car and is about to leave, will begin to offer other models, trying in every possible way to stop the leaving client. There's nothing worse than buying a car you don't like. Sellers know how to persuade beautifully. You won’t even notice how you get a loan for a car that you had no intention of purchasing.

Free legal advice:

2. After the car is selected, you need to select a bank and loan program. Try to buy a car from a dealership that cooperates with several banks. It is better if there are around 5-6 of them. In this case, you can choose the most optimal car loan program for yourself.

3. Since buying a car on credit at a car dealership involves transferring your data to the bank for review, you must fill out an application form. All necessary documents must be attached to the application and the amount of the advance payment must be indicated. If you do not have all the documents required by your chosen bank, you do not need to submit an application to another. It is better to collect all the necessary papers and come the next day. Banks often require that the borrower take out life and health insurance. Its cost is usually included in the loan amount, but the purchase of such a policy is not a prerequisite. You can refuse it. There is just one caveat - without this insurance, the bank may refuse to issue a car loan.

4. After all documents and the application have been sent to the bank for consideration, you can only wait for a response from the financial institution. Depending on the conditions, the lender has from two hours to 3-5 business days to review the application, assess solvency and check the credit history. The decision will be announced by telephone.

If the decision is positive, you should go to the car dealership where you submitted your application to apply for a loan. In order to buy a car at a car dealership on credit that has already been approved, you need to sign two main agreements: a purchase and sale agreement and a car loan agreement. With the first, everything is much simpler than with the second. The car loan agreement is signed first. It is important here that you carefully study it completely before signing. It is necessary to familiarize yourself with the presence of commissions, penalties and fines, the effective interest rate, the payment schedule and the total amount of overpayment. If you don’t understand something, do not hesitate to ask questions to a bank representative; he is obliged to explain every point of the agreement.

If there is something in the contract that worries you and you have doubts, you can refuse to provide a car loan.

Free legal advice:

When the contract has been studied, everything is clear to you and you agree with all points, you can sign it and make the advance payment amount. If you take out life and health insurance, you will additionally need to sign an agreement with the insurance company. Bearing in mind that the pitfalls of car loans at car dealerships still exist, the contract with the insurance company needs to be carefully studied. Particular attention should be paid to insured events specified in the contract. After concluding the purchase and sale agreement, you need to pay CASCO and you can pick up your brand new car for registration with the traffic police.

Since CASCO at a car dealership is much more expensive, try to negotiate to purchase the policy yourself. This way you will save a lot, because CASCO is by no means a cheap car insurance market.

It is better to register the purchased car with the traffic police yourself, since the assistance of car dealers is often not free. The cost of registration assistance may be included in the loan amount without notifying the borrower. Unless, of course, he agrees in advance to provide such a service.

Before you sign a car purchase and sale agreement, make sure that the car is in good working order and equipped exactly as specified in the contract. Feel free to carefully examine the car for scratches and check the functionality of all devices. If you find any defect on the car you are buying, you can get a good discount from the car dealership.

Free legal advice:

Pitfalls and disadvantages of a car loan

“Use now, pay later” is the slogan of many credit companies rushing to “make their clients happy”. But are such offers as profitable as they seem at first glance?

Owning a car ceased to be a luxury more than a decade ago. And lending played a huge role in this.

About 40% of cars in Russia are purchased on credit, and the prospects for this service are incredible: in Europe today 60% of cars are already purchased in installments, and in America the figures have exceeded 80%.

But, crossing the threshold of a car dealership, everyone is faced with a huge number of impressive offers: a loan without a down payment, assignment of a car loan, consumer lending.

When we imagine ourselves driving a new car, we rarely think about the fact that buying it on credit will be about a third more expensive than paying in cash. What other pitfalls of a car loan are hidden behind the “sweet” promises of lenders?

Free legal advice:

Attention first

When making a purchase on credit, the client and the bank enter into several agreements at once: a purchase and sale agreement with a car dealership, an insurance agreement with an insurance company, a pledge of a car and, in fact, a loan agreement.

Naturally, there is a lot of information that is worth familiarizing yourself with. And the main nuances are usually indicated in incredibly small print.

The most controversial features of a car loan arise when applying for an interest-free loan. In this case, the bank charges a fabulous amount for insurance, most of which is the income of the lender.

Never rush to apply for a loan: once you receive copies of documents in your hands, take a few days to familiarize yourself with them. Re-read the entire text at least three times before signing the contract.

Often important points are hidden between 5-10 formalities: this is done on purpose so as not to focus the client’s attention. It is best if a knowledgeable lawyer comes to help you obtain a loan.

It's not common to talk about this

This is how the psyche works: when it seems that the product is already in hand, one is ready to make any concessions in order to become its sole owner. This is a simple technique that lenders use.

Car dealerships inform you about the pitfalls of a car loan after you have decided on the model, prepared the documents and are already mentally “starting your own swallow”.

• commission when opening an account (standard from 5 thousand rubles);
• interest for maintaining an account (up to 0.5% monthly);
• penalty for early repayment (up to 2% of the amount);
• penalties for late payments (from 5%);
• fixed fee for insurance.

Top 3 tricks that everyone falls for

1. Insurance only from the best companies. It’s not a fact that they really are the best; fact - the most expensive ones. Be prepared that when applying for a car loan you will be asked for insurance 2-4% more than the average cost on the market.
2. Sometimes there are similar promotions: a certain model is sold at a discount, and only its car dealership offers to buy it on credit. In this case, the total cost of the car with interest will most likely even slightly exceed the original amount without the promotion. With such “advantageous offers”, cunning sellers try to sell “slow-selling goods” faster.
3. An interest-free loan is perhaps the riskiest adventure. Firstly, a huge down payment is required (approximately 50% of the total cost). And secondly, the loan period is very short: as a rule, no more than a year. Don't forget about additional commissions and fees.

How to avoid getting hooked

You can really benefit from lending! In order to circumvent the disadvantages of a car loan and have minimal damage, you need to adhere to several rules:

• start by choosing a car. Decide on the model “remotely”, and then go looking at car dealerships. Thus, you are more likely not to fall under the influence of persistent salespeople, whose goal is not to let you leave the store empty-handed;
• buy from a store that cooperates with several banks. Optimal - 5-6. Then you will have, albeit a small, opportunity to evaluate and select the best offer;
• make a transaction with the bank only if you have the necessary documents. If you don’t have the necessary papers on hand, come back another day, but do not agree to cooperate with other creditors. The illusion of haste that is created in car dealerships does not work in your favor.

Finally, don’t be shy to ask questions to bank employees. Clarify all the points of interest: interest rate, payment schedule, total amount of overpayment, commissions, fines, etc.

It is ideal if all the information is written down on a piece of paper, and you carefully read it at home, with a fresh mind.