Car Financing and Car Loan General

It may be good to know that there are many ways to finance a car purchase. Here you will go through the most common financing methods you can use when buying a new car. Before you continue reading, you should be aware that we will not be so concerned about interest rates, ie the interest rate after inflation. Visit for a summary

The reason is that the value of the car does not increase with inflation. It drops in value. In addition, a car loan is also so short-term that inflation would not have a major effect on the loan amount. Since interest rates in society change a lot over time, we have subsequently chosen to compare interest rates in what we might call a normal situation.

Cash and money on book

First of all, you can only admit it, you have dreamed of going into a car dealership with money in the bag and cashing out the car you want. Apart from the comfortable feeling, this is the cheapest financing solution. But it costs something too. You could alternatively get interest on the money by having them in the bank. You must include that cost when comparing it with other forms of financing.

To take an example: You have 200,000 kroner and are going to buy a car for them. Usually you can get approx. 3% on this money in the bank. Your financing cost must be calculated after tax. It will be 2.16%. Let’s see how cheap this is compared to other alternatives.

Loans from family

If you have a kind Aunt Olga or other well-to-do in your immediate vicinity, it may pay off for them and you to borrow money from them. Many get rid of this, but the problem is solved by offering a higher interest rate than they are able to bank. For example, if they have the money left on the bank book at 3% interest, you can offer 4% without hesitation.

It benefits both, rather than going to the bank to borrow at an even higher interest rate. With a 4% interest rate, your financing cost becomes 2.88% after tax.

Car mortgage

A mortgage loan in the car is also a fairly common option. This means that the mortgage will be registered. The usual car loans offered by banks and finance companies apply to car mortgages. Normally you can only borrow 65% of the purchase price but with such loans, while some offer up to 100% of the total.

Which car loans are the best at all times varies greatly. Some traders offer very low interest rates as promotional offers, but they do not have to be the best for that reason. Car loans are characterized by the fact that they are small and will be repaid over a relatively few years, perhaps as little as 3 years.

Thus, the fees push the effective interest rate far away from the nominal. It is the effective interest rate that you have to compare gets you to get a picture of which car loan is the cheapest. In a normal situation as described above, a car loan will soon cost around 8% of the effective interest rate. This means 5.7% after tax Compared to the other financing options, this is by far the most expensive.