credit_auto_l_0.jpgThe crisis that has been raging in Europe since 2008 does not only have bad sides. Since European governments have tackled public deficits, a panel of austerity measures has been implemented by member states to try to generate more tax revenue to replenish state coffers.

Difficult equation to say the least: increasing the tax burden on citizens while trying to maintain their purchasing power. To date, this is a rather lost bet if one refers to the trend of internal consumption in Europe. The European citizen is affected by their purchasing power and is withdrawing into themselves. As a result, consumption is sluggish. Among the many sectors of the economy affected, the automobile market is severely suffering.

But is this bad news for your wallet? Not necessarily…

The Collapse of New Car Sales

In Belgium, 70% of car transactions involve used vehicles. A little over 12 million vehicles were sold within the EEA in 2012, which corresponds to a total drop of 8.2% compared to 2011. All the figures in this report.

The countries most affected by this decline are: France (-13.9%), Spain (-13.4%), and Italy (-19.9%). Germany limits the drop to -2.9% and surprisingly the United Kingdom gains +3.7%.

Among manufacturers, it’s a bloodbath: PSA Peugeot (-12.9%), Renault (-18.9%), Fiat (-15.8%), GM, and Opel (-15.6%) particularly suffered in 2012.

Other brands stand out: Audi grew by 3.7%, BMW (-0.1%), Mercedes (-0.9%), Hyundai (+9.4%), and Kia soared to (+14.6%).

It’s Time to Buy Your New Vehicle…

Why buy a new vehicle rather than a used one? Citizens facing austerity buy more used vehicles. As mentioned, 70% of transactions involve used vehicles! But what if that’s not the best calculation…

Here are a few keys that could lead you to make a good deal:

  • Many car brands have very large stocks of unsold vehicles…
  • These brands therefore offer discounts on new vehicles that can reach up to …40% off the sale price. Examples in this report.
  • The warranty on a new vehicle can last up to 5 years. You have no warranty on a used vehicle bought from an individual…
  • You can resell your vehicle after 4 or 5 years and receive enough value to pay your residual value, and this is all the more true since 70% of other consumers will be looking for a used vehicle…
  • Your new car financing is much more attractive than an installment loan for a used vehicle…

Buying a New Vehicle with Residual Value

You can buy your vehicle with a residual value purchase option; in this case, you only finance 60% of the price of your vehicle and after 5 years different choices open up to you:

  • Either you buy the residual value by paying the remaining 40% balance in cash;
  • Or you resell your used vehicle and thus repay the remaining balance due.

If you opt to change your vehicle every 5 years, it will be advisable to buy your vehicle with a residual value. However, if you wish to keep your vehicle longer, a comprehensive car loan is more interesting;

What are we talking about? It should be noted that the APR for new car financing is around 4%, while that for a used vehicle is about 10%

An Example is Better than All the Speeches…

  • A new luxury vehicle: value €35,000 (not counting the discount you could negotiate…). 5-year warranty. You finance with residual value 60/40. So you finance 60% of €35,000 = €21,000. After 5 years: you will have a balance of €14,000 to pay.

Loan of €21,000 over 5 years at an APR of 4.99% or a monthly payment of €395.14 and a total cost of €23,708.

After 5 years, you resell your vehicle for €13,000. Your vehicle will have cost you €24,708 instead of €39,000 (if you had borrowed €35,000 over 5 years).

  • Assume you get a 30% discount on purchase. Vehicle price: €35,000 – 30% discount or €10,500. Purchase price €24,950. You finance 60% of the vehicle or: €14,970. Remaining balance after 5 years of €9,980.

Loan of €14,970 over 5 years at an APR of 4.99% or a monthly payment of €281.68 and a total cost of €16,900.

After 5 years, you resell the same vehicle for €13,000. Your vehicle will cost you €13,880 (i.e., €16,900 + €9,980 – €13,000).

In conclusion: You pay for your vehicle the same price as a used car buyer 5 years after the acquisition date (not counting the financing of this used vehicle for €13,000 at 9.95% over 5 years for a total cost of €15,885). Your advantage in this case is €2,885…

It is sometimes worth getting your information and your calculator.

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