Car from being an object of luxury has shifted to being an object of necessity. Investing in a car is an expensive commitment unlike other investments, like real estate, equities etc. It is a depreciating asset which means a brand-new car loses at least 20% of its value as soon as it is driven off the dealership lot. Even new cars tend to depreciate by 15% year on year.
Despite this, the joy of owning a car for oneself or for his family is a personal accomplishment for many.This can be better understood with the fact that in 2021, the total number of passenger vehicles registered for use on public roads in Germany crossed 48 million.
Buying a car involves time-consuming process. It is both exciting as well as daunting. Exciting because of the numerous manufacturers and brands to choose from especially in a land of cars and daunting because it demands stringent compliance to German rules and procedures – be it insurance including third party liability insurance,legal insurance etc.
Now more than 95% of the new cars purchased in Germany are financed. This article provides information about the car loan process followed in Germany.
Taking the first step
Once you have zeroed down the car model you desire to purchase, you can approach the dealer as they generally work in tandem with the banks or financial agencies. You can discuss with them for a viable option to get your loan approved quickly. The best part is that you are freed of all the hassles in it as they handle all the paperwork by themself. In case of buying pre-owned/used cars from the dealers, they will still help to get the loan. Whereas, if you are purchasing a used car from an individual, you have to approach the financial institutions by yourself directly to get it financed.
Whom to reach out for car loan?
We work as registered loan distributor and have access to multiple platforms to guide you through the whole process and get the best possible loan conditions. Appointment link is given below
Banks: Banks provide competitive rate of interest to its clients for a car loan. So, you can reach out to your bank.
Automobile manufactures banks: Car manufactures, to make the process hassle-free, have set up specialized banks such as Audi Bank, Mercedes Bank, Volkswagen bank, BMW Bank etc. These banks in collaboration with the car dealers sanction car loans for their house brands. This option incentivizes the car buyer by hastening the entire loan sanction process
Other options
Peer-to-peer lenders like Smava offers personal loan for the purpose of buying car. The interest rate varies with respect to your credit score. Whereas institutions like Maxda do not require credit score but they levy high interest rate.
Car loan through an internet comparison – With the data entered, your loan application is calculated in relation to the models of many banks. This brings many banks to compete with each other to offer you loan. Thus, this increases your chances of car finance approval with reduced interest rate.
Prerequisites to avail a car loan
- Legal age (18 years or older)
- Place of residence in Germany (through registration card)
- Stable income
- No negative Schufa-entry
- A current account with IBAN(debit the monthly instalment)
It is at the discretion of the lender to decide whether to give you loan or not and if so, what is the maximum amount to be given. It is calculated through your statement of income, your obligations towards your pre-existing loans and supplementary information from creditworthy agencies, in Germany it is Schufa.
The higher the Schufa score, the lesser will be your interest rate. And as an expat residing for short period, you may lack a Schufa report. In that case, if you canprove that you have a stable job and a regular monthly income (at least 3 months’pay slip) you may be sanctioned a loan.
What about Down-payment and Repayment duration?
Generally, one will be asked to make a down-payment for the loan to make a car purchase. The higher the down payment, the easier it is to get a loan, the lower the interest rate and lesser the monthly payment. If you want to get the best possible interest rate, then at least 20% down payment needs to be done.
The repayment period largely is decided based on the price of the car, it may range from a period of 12 months to 60 months or beyond that. However, for a foreigner, the residence permit must be valid at least till the end of prepayment period before sanctioning a loan.
Tips to increase the chances of loan approval
- It is advisable to get a Schufa report before requesting for a loan. This is because your Schufa data may be outdated or wrong and project your score in a negative light. If that is the case, then the applicant is rejected instantly without stating the reason. For these obvious reasons, it is better to validate your Schufa before the bank validates yours and update it accordingly.
- If you can have a second borrower, the probability of loan approval increases. You will be regarded as a more reliable and trustworthy person since now there are 2 people responsible for the closure of the loan. It reduces the risk of defaulting. You can further bargain for a competitive interest rate from the financial institutions.
- If your monthly instalment is higher than your monthly disposable income, just increase the repayment duration. This increases the chances for loan approval as with longer period banks are at advantage.
You can use our car loan calculator where you can compare various car financing providers for car loan in Germany.The economic fallout of Covid-19 pandemic made some German car buyers more cautious. As people moved online, this has pushed up the share of used cars in German car loan portfolios. Online purchases like virtual meeting and work from home brought people to understand the convenience of alternatives to established behavior.
Above all, if you are a real car enthusiast, then you will equally enjoy the entire process of acquiring one as much as you enjoy driving the car.