The auto loan
Need to change vehicles? Despite insufficient personal funds to buy cash, it is possible to acquire a new car through several techniques, in the first place the car loan.
Definition of auto loan
The auto loan is part of the family of consumer credit – that is to say, transactions other than those related to real estate, to buy consumer goods current, the amount is between 200 € and € 75,000 with a repayment term longer than 3 months. This broad category includes revolving credit, personal loan and assigned credit.
More specifically, the auto loan – auto loan, often called auto credit – is a consumer credit assigned to the purchase of a car. In case of subscription to a car loan, when buying the vehicle the credit offer mentions the purpose of the loan; this is why it will be necessary to justify the nature of the purchase from the lending agency (for example by producing an invoice).
The auto loan is linked to the purchase of the vehicle and this single commercial transaction actually includes two different contracts: a sales contract between the buyer and the seller, and a loan agreement between the borrower and the organization. credit.
Since credit is allocated, the auto loan is a depreciable credit since its amount, its duration and the repayments are known in advance. The lender pays the funds directly to the provider and the borrower pays installments including capital, interest, and sometimes insurance. Thus, it does not fully dispose of the property until the end of the repayment of the entire auto loan granted.
Auto loan conditions
Place of subscription: The car loan is usually offered at the point of sale, most often at the dealership, but it is possible to request it from a bank or a specialized financial institution.
Assignment of the auto loan to the purchase of the automobile: Since credit is allocated, the auto loan must serve only to pay the defined automobile. So if the sale is not realized, in case of withdrawal in particular, the car loan is automatically canceled.
Auto loan application: The auto loan is granted by a bank or institution; generally, the purchase of the automobile and the loan request take place during the same operation. This is why the steps often take place directly at the dealership.
Compliance with the rules of the consumer code: Like any consumer credit, the car loan is subject to compliance with the rules of the Consumer Code. Since May 1, 2011, the withdrawal period of the car loan is 14 calendar days after acceptance of the offer and signature of the contract; this period is identical for the sales contract (since July 26, 2014). The duration of the withdrawal period is of public order, which is why no clause can shorten it. The retraction does not impose any compensation for the benefit of the lender, nor even motivation.
This Code also requires pre-contractual information from the borrower and a list of information to be included in the credit agreement of the car loan (vehicle designation, cash price, credit maturities, amount of maturities and annual effective rate global). These obligations make it possible for the lender to ascertain the solvency of the beneficiary in order to know if he is able to repay the credit.
Attention, we must not forget that to benefit directly from the rules of the code of consumption, the beneficiary of the car loan must declare that the purchase of the vehicle meets a private or family need and the lender must be a professional. If this is not the case, the credit agreement may however remain subject to the aforementioned provisions in the event of agreement between the two parties.
Express agreement of the lender: The agreement of the financial institution to grant the car loan must be made expressly within a period of 7 days from the signature of the credit agreement; otherwise, the loan application is deemed to be refused. Since the sale of the automobile and the loan constitute the same commercial operation, the purchase is conditional upon obtaining the auto loan and vice versa.
Personality of the borrower: Like any credit, and more in terms of consumption, the borrower must be certain to be able to repay, on schedule, the auto loan contracted. A car loan can be granted for the purchase of a new or used vehicle, regardless of the vehicle model (sedan, city car, sports car,…). Nevertheless, there is no right to credit: this is why the credit institution can refuse to grant credit without even giving reasons for its decision. In this case, the contract of sale of the vehicle is canceled; the eventual deposit is then refunded to the buyer.
Amount of car loan: Generally, the possible loan is between € 3,000 and € 45,000 for a car loan – this amount up to € 75,000. The offer may, however, vary according to the borrower’s debt ratio.
The credit agreement must indicate the borrowing rate (from which the monthly interest is calculated), the annual percentage rate of charge (APR) and the amount owed by the borrower (including mandatory fees and commissions).
Auto loan term: Since consumer credit, the car loan must be granted for a period of more than 3 months (ie 3 monthly minimums to pay). Generally, the repayment of the car loan is done monthly.
Repayment of credit: The repayment of the car loan by the borrower begins only from the delivery of the car. Therefore, no definitive payment can be made before the signature of the credit offer and before the expiry of the withdrawal period of the loan agreement.
However, it is possible to prepay the car loan; in this case, the lender can sometimes claim an early repayment indemnity (IRA) although its exercise is framed by law (prohibited for a credit less than € 10,000, between 0.5 and 1% beyond).
Postponement of deadlines: There is often a possibility to postpone deadlines twice a year in the event of payment difficulties (the repayment of the car loan is then suspended until a later date).
Loan Insurance: A borrower insurance is usually offered as part of the auto loan. Optionally, it generally covers various incidents (death, absolute & final disability, etc.).
Usual parts to provide: Photocopy of the identity document, recent proof of residence, photocopy of the latest payslips, RIB, purchase order / proof of operation.
Other auto financing opportunities
In addition to the car loan, to finance the purchase of a vehicle, there are other options.
First of all, the personal auto loan is a credit not allocated to the acquisition of a car. Favored when buying a used vehicle, its use does not need to be justified to the lender. It therefore offers greater freedom for the borrower than in the case of an auto loan.
Then, the balloon credit makes it possible to refund only part of the value of the vehicle. This is the best solution for regular vehicle changes and monthly payments are reduced.
The lease with option to purchase is a leasing contract, that is to say that, for a specified period, the vehicle is rented with the possibility, at the end of the period, to acquire it definitively. It also allows you to change your car regularly.
The long-term lease allows you to rent a vehicle but can not definitively acquire the property at the end of the rental period.
Advantages & disadvantages of auto loan
The auto loan, since credit allocated, does not allow to freely dispose of the sum lent. Indeed, it must imperatively be intended for the payment of the vehicle. It therefore offers less flexibility than a personal loan and is often accompanied by high fees. In addition, offers made do not often meet the needs of a small amount (rare offers below € 3,000).
Of course, like any consumer credit, the borrower must remain vigilant about its ability to repay the auto loan.
However, this type of credit offers considerable advantages:
- Security for the banker: Unlike a personal loan, the affected auto loan is reassuring for the lender who knows exactly what the loan is for;
- Consequential cancellation sale / loan: Due to its assignment, the auto loan is automatically canceled in case of cancellation of the sale; as well as the contract of sale will be declared null and void in the absence of found funding. On the contrary, a personal loan is maintained in case of cancellation of the sale and the sale remains valid even in case of lack of funding;
- Refund on delivery of the vehicle: The repayment of a car loan begins only upon delivery of the vehicle – that is why, if this event does not occur, no amount is payable; in case of personal loan, the monthly payments must be due even in the absence of delivery of the vehicle.
- Fixed monthly payments and known repayment period;
- In general, the repayment term is longer and the amount of borrowing is higher in the case of an auto loan than in the case of a personal loan.