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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.

Today, February 17th, marks the start of the practical test of the highly controversial kilometer-based tax project by the government.

In practice, 1,200 people will start testing the kilometer-based tax this Monday, which involves paying up to 9 cents per kilometer traveled within the RER zone (Brussels, its periphery, and areas covered by the future regional express network), versus 5 cents on the highway and 6.5 on other roads.

The rate varies depending on the time of travel and the characteristics of the vehicle. After a month of training, the actual test will last for one month. The results are expected in mid-May.

This is indeed a test. No decision has been made by the different regional governments. An article from the Crédit Populaire Européen

In brief

Driving in urban areas could cost 9 cents per kilometer in the future, compared to 5 cents on the highway and 6.5 cents on other roads. The principle provides for a car tax on each kilometer traveled, depending on peak hours and the type of road used by the driver.

The tax will be more expensive during peak hours – from 7 a.m. to 9 a.m. and from 4 p.m. to 6 p.m. – and motorists can drive for free between 10 p.m. and 5 a.m. During peak hours, the amount will reach 9 cents per kilometer in urban areas.

The fee calculation will be done using a GPS that will calculate the distances traveled. Its implementation would be facilitated today by the GPS systems that will be installed from 2015 on all new cars to enable the installation of the European automatic emergency call system.

The device’s screen displays the vehicle’s location as well as the price of the road being used.

The potential implementation of this kilometer-based tax, which will be tested for two months, will not be possible before 2017.

A project that is not new

This project originated from an agreement concluded in 2011 between the three Regions regarding the taxation of heavy goods vehicles. The idea had been in the air for about ten years.

The consultant PwC proposed this idea, and it was presented on behalf of car importers by the Fébiac last October.

The “polluter pays” principle

The principle is logical and already applied through excise duties on fuels, VAT, maintenance, and spare parts, or new insurance formulas: the more you drive, the more you pay.

This project is supported by Beci, Voka, Touring, and VAB and aims to introduce car taxation based on usage rather than ownership. It is intended to replace existing taxes and the flat-rate circulation tax.

Other objectives: to encourage drivers to use public transport more often or to plan their trips at less congested times, which are more tax-advantageous. One of the main objectives is to find a solution to the congestion of urban centers and specifically to traffic jams in Brussels.

A contested project…

Public opinion reacts quite negatively. Comments are popping up everywhere on social media, and a petition against the kilometer tax is currently collecting nearly 167,000 signatures.

Opponents see it as discriminatory taxation that would primarily hit those who drive many kilometers a year and live far from urban centers. In itself, this consequence is logical, but its Achilles’ heel is that it would seem to mainly affect low-income individuals who chose to buy their house a bit further away to reduce the purchase price. This is a significant adverse effect.

As a result, many politicians, and indeed the vast majority of political parties, say they are opposed to this project. It must be said that the prospect of upcoming elections does not encourage politicians to take risks.

But in absolute terms… encouraging motorists to drive less is a project that also has its reasons for being.

Did you know?

A new car loan applies a more advantageous APR than the financing of a used car. A car is considered new when it is less than three years old. Thus, you can obtain very competitive financing on a used car that is less than 3 years old. Get your free simulation with our online credit simulator

Are you determined to do some home renovations and looking to borrow money to finance your projects?

On our website, you will find a very handy tool to give you a precise idea of the cost, duration, and interest rates for your renovation loan.

Use our renovation loan simulator

How does it work? Very simply: follow a few instructions and watch. Choose your project: renovations. Several options are then available to you: land purchase, insulation, fitted kitchen, carpentry, veranda, roofing, etc.

Next, specify the loan amount: let’s say €12,000. Click on the calculate button. The simulator will then show you the amount you will need to repay and the duration of the loan. You can adjust your request based on the duration or the monthly payment.

Once the amounts are satisfactory, you can then submit your request.

The second screen provides a quick overview of your request, including your APR and the total amount of interest paid over the duration of the loan. Then fill out the form. Rest assured, this form is just a simulation and does not commit you to anything.

Complete the mandatory fields marked with an asterisk, and to speed up the processing of your file, you can fill out the other fields. Don’t forget to select “I am borrowing with another person” or “alone”. In this case, don’t forget to complete the co-borrower’s information. Once the mandatory fields are filled out, click on the next page. If you forget a field, it will be highlighted in red.

A third page opens. You will notice that no fields are mandatory; you are free to fill them out. Fill in the loan amount and/or down payment, for example.

The next screen concerns your address. Some fields are mandatory; fill them out. Then move on to the next page.

Now complete the mandatory fields related to your professional situation and then click on the next page. At the financial data level, only one field is mandatory.

You can then submit your request, and only at this point will it be processed. Rest assured: you will only be committed after signing your credit contract, and not before! In case of difficulties, call us, and we will complete your request together.