Investing in a car is a particularly significant expense, often requiring a loan. Among the most common financing options are the installment loan, leasing, and specific-purpose credit. Each of these three types of loans has its advantages and disadvantages. How do you differentiate between them? What criteria should be highlighted to make a wise choice?
Car purchase: a closer look at specific-purpose credit
Financial institutions often present specific-purpose credit as a solution that can help you when buying your vehicle. As its name suggests, specific-purpose car credit is a loan specifically intended for the acquisition of a vehicle. Its contract is precise, including the cost of the car, the various installments, and the repayment period. It also informs you of the total cost of your credit, including the different applied rates and any additional fees.
If you have opted for specific-purpose credit for the purchase of your car, the repayment only occurs after the delivery of your vehicle. This temporary commitment results in the cancellation of the loan if the delivery of the item ultimately does not take place, regardless of the reasons. However, its major disadvantage lies in its rigidity. You cannot, in fact, change the purpose of the financing to purchase another item outside of what is provided in the contract.
The installment loan for buying a car
The installment loan is the most common for purchasing a car. It allows you to have a new or used vehicle according to your needs. With this type of financing, you can know from the start the cost of your credit and the duration of your loan. Other advantages include that the installment loan can be customized, meaning that the amount and duration of your monthly payment can be tailored to your profile.
Its inflexibility significantly penalizes it. You must, in fact, pay the same monthly payment every month on a pre-determined date. There is a variant of this type of loan: the balloon contract. It has the advantage of reducing the monthly payments for the first few years since the largest part of the capital is to be repaid at the end of the contract. The car also becomes your property from the moment you sign up. Be careful, however, as poor management can keep you in debt longer, and you will also need to plan to pay the final amount as the end of the repayment period approaches.
Advantages and disadvantages of leasing
Leasing is also an interesting option for buying a new car. Commonly known as leasing or lease-to-own, this credit allows you to rent a car from a rental company for a specified period and then purchase it at the end of the contract after buying it out. Until the end of the contract, the rental company remains the owner of the vehicle, and you are considered a tenant.
The advantage of leasing is the ability to spread the purchase over several monthly payments, which can significantly lighten your expense. For a business, a car bought on lease does not enter its assets since it still belongs to the rental company. No surprises are likely to disrupt its budget since the monthly payments are fixed until the end of the repayments. Far from perfect, leasing also has its disadvantages. The most common concern is the initial deposit required, which is sometimes quite high. Irreversible, leasing does not allow for retraction once the contract is signed.
