Expenses for a car loan

When you repay a loan, you do not just repay the amount borrowed. Other fees are expected, which often inflate the total amount of the invoice and therefore the amount to borrow. But you can save money.

Interest to be repaid

Interest to be repaid

When you use a lender for a car loan, you must necessarily pay interest, which differs depending on the type of credit and the interest rate applied by the lender.

In principle, the longer the chosen repayment period, the higher interest rates tend to rise. Interest can be presented in two different ways: the nominal rate or the APR.

The nominal rate represents only the cost of the loan and the monthly payments. It allows you to get an idea of ​​the cost of capital that you borrow but does not take into account the other costs generated by a request for auto credit. This is the nominal rate that is put forward by credit institutions, because it is much more attractive at first.

The APR corresponds to the total amount of the loan, and includes the interest paid, but also the handling fees, the insurance and guarantee fees or other charges required by the lender. It is much higher than the nominal rate, but there are no hidden fees and it is advisable to compare offers from a TAEG price.

Application fee

Application fee

As part of a car loan, the lending institution also charges a fee that allows you to pay the time spent studying your file and grant you a loan.

It is possible to enter the application fees in an APR rate, but they can also be financed outside the credit. They are then settled when the bank or financial institution releases the funds.

The fees are set fairly freely by the banks, so you have a good margin of negotiation on it. It is not uncommon for lending institutions to give a discount or even offer the application fee. It all depends on your situation, your contribution or your ability to repay.

The amount of fees is quite free, but banks still tend to align with market prices not to scare customers. An amount between 1% and 1.5% of the total loan amount is generally expected, depending on the capital and duration of the loan.

The borrower insurance

The borrower insurance

Contrary to popular belief, the subscription of a borrower insurance for a car loan is not mandatory, unlike a mortgage. On the other hand, this insurance is highly recommended, especially if you have borrowed a large sum or contracted a credit over several years.

Most credit insurance can protect you against the risks of death, illness, disability or incapacity for work. Some offers even allow you to be insured in case of unplanned unemployment.

Even though this insurance is not compulsory, banks tend to condition the granting of a loan to the underwriting of a borrower insurance. Unless you have an excellent record or a wealth of assets to put collateral in, there is little chance of cutting it.

Be careful, do not confuse borrower insurance for an auto loan with your car insurance. The first allows you to repay the outstanding principal of your loan in case of an accident of life. The second is insurance attached to your vehicle, which includes warranties, including third party liability to compensate third parties to whom you may have caused injury.

How to save?

How to save?

Everything is played on the negotiation, according to your file. It is unlikely to get very good offers if you negotiate the nominal interest rate. But you can save money by negotiating fees or borrower insurance.

Regarding the application fees, as they are freely set by the financial institutions, they usually add a margin that allows you to request a reduction. In some promotional offers, banks may also offer fees to attract customers.

For the credit insurance, there is a good chance that the bank requires you to buy one to release funds. But you can turn the situation to your advantage by playing the competition and comparing several loan offers. If the lending institution really wants to deal with you, it will negotiate a decrease in the amount of insurance.

It is advisable to introduce yourself with a small contribution before applying for a car loan. The more your contribution will be consequent, the more your trading margin will be wide. Depending on the capital borrowed and the duration of your credit, you can save thousands of USD.