The runtime is also important. Here the lender asks the question: are the financial possibilities sufficient to finance a loan during this time?
Car loan, what is being checked – loan requirements
In simple terms, this means that the borrower must have a sufficient income that is above the attachment limit. The credit bureau must not have any negative entries.
The employment relationship has existed for at least six months and is not limited and does not include a trial period. Existing other liabilities may also have to be manageable.
The credit rating is weak – and now?
If the lender does not consider the creditworthiness sufficient, he rejects the loan application. In general, the income must be high enough to pay a loan.
A clean credit bureau must also be available. Those who are unemployed or who receive Hartz IV and who have an income that just covers their livelihood will also not receive a loan from this group of people.
Banks do not lend to people who are not creditworthy in their sense. Income increases with:
- child benefit
- housing benefit
- or unemployment benefit,
the loan seeker should know that this income is not part of the attachable income.
If a car loan can be checked with a guarantor and if the guarantor believes that the borrower has sufficient income to pay the loan installment, he should be careful.
The risks of a car loan guarantee what is being examined
Many guarantors blue-eyed sign a loan agreement and provide a guarantee. In the case of a joint and several guarantee, the bank is responsible for the guarantor if the borrower pays as agreed.
If the borrower is in arrears with payment in installments, the bank not only writes to the borrower but also to the guarantor. The guarantor should then know what to expect. The borrower should then have enough influence to pay the installments. As an aid, the guarantor could perhaps pay one or two installments if the borrower is in financial constraint.
He could then repay the amount later. A guarantor should also know that the guarantee is entered in his credit bureau. This can mean that if he needs a loan himself, he no longer has an adequate credit rating. In general, a guarantee is not a short walk, it involves some risks.
Car loan what is checked – residual debt insurance?
If you take out a car loan, you will probably pay it off for several years. Unpredictable financial problems can arise, especially when the term is longer. To prevent this, a residual debt insurance could be taken out. Banks prefer to offer them to customers with a somewhat poor credit rating.
Residual debt insurance occurs in the event of death, unemployment or disability. However, this insurance will increase the cost of credit. It could be an option if it is a long term and a large loan amount.
Car loan what is being checked – age of the borrower
There are a few prerequisites to be met for a bank to grant car loans. For example, the applicant must be of legal age, i.e. 18 years old. If the borrower has not yet reached this age limit, the signature of a guardian or the parents could ensure a positive decision. People are only legally capable from the age of 18 (§ 104, 106 BGB).
Not only the age of majority is a decisive credit factor, also the upper age limit. Customers can assume that a loan could be difficult from the age of 65. For older borrowers, banks often see the increased risk of death as a loan refusal. In addition, should a residual debt insurance become necessary, there will only be one insurer.
Car loan what is being checked – collateral
If the lender does not find the income sufficient, he could ask for collateral. This would reduce a default. The first thing on the program is a residual debt insurance. As mentioned before, this should only be concluded for a long term and with a large loan amount.
In the case of a car loan, the bank will keep the vehicle registration document. The borrower only gets his security back after a complete loan settlement. If the loan amount is small, it often does not require additional collateral.
Car loan what is being checked – budget
Before the loan application, there is another important question to be answered – “which car can I afford”? Does it have to be a new car or does a good used car do the same. What are my other liabilities? What can I pay as a loan installment? To answer all these questions, car buyers should draw up a so-called budget. Basically, that’s just a simple comparison of income and expenses.
The bottom line is a surplus. Because, only unplanned money can be paid in installments.
Find the right lender
The car can be financed with:
- a classic installment loan
- balloon financing
- or a three-way financing
Car dealers in particular often offer very low interest rates. Dealers even advertise their car loan as “interest-free”. But the car buyer shouldn’t act too hastily, because the cash payer discount often tops the low interest rates by far. Customers receive this cash discount if they pay their car in cash at the dealer.
That can be quite possible up to 30% discount. The popular three-way financing is then – from the point of view of economy – out of the race.
Three way balloon loan – why?
Nevertheless, many new car buyers take out dealer credit. Because they want to afford a higher-priced car without paying high monthly installments. At the end of the term, the final installment is definitely waiting. If the car buyer cannot pay them from reserves, this financing is more expensive than an installment loan.
If the final installment is re-financed, the interest rate subsidies will cease. The bottom line is that car loans cost significantly more money.