How to hire a car loan?
An auto credit is a personal financing with the specific purpose of acquiring a vehicle. But how does it work, what requirements are necessary and what should you decide before hiring? We explain next.
Want to buy a car through car credit? The credit intermediaries of Poupança no Minuto collect several proposals from banks and help you decide on the best conditions for you. Find out how this credit works.
What is an auto credit?
Want to hire a car loan? You can go ahead if it's a new or used car, meeting the requirements requested by the banks.
By hiring this type of financing, the financial entity retains ownership/mortgage of the property.
This is a personal loan for the specific purpose of a car and is one of the easiest to contract, being able to get up to 100% financing with terms up to 120 months (10 years).
Conditions will depend on the proposals presented, depending on the amount of financing needed, the chosen financing term, as well as the year of the car and the interest rates applied to the loan. Therefore, you should always request multiple simulations from different banks to compare and have the most suitable proposal for you!
What are the requirements to access a car loan?
In order to access this credit, have the financing approved and with better conditions, banks evaluate your effort rate, and your risk profile.
The effort rate is calculated based on your monthly income versus the monthly credit installments you have contracted, to understand the impact that one more installment will have on your budget. This is how the bank analyzes if you have the financial capacity to support one more monthly charge.
The ideal effort rate, according to the Bank of Portugal (BdP), should be up to 35%, with the following calculation formula:
Total installment/income of household x 100 = Total percentage
In other words, if you have a home loan contracted and pay 400 euros monthly for it, receiving a monthly net income of 1,600 euros, your effort rate will be 25%. Therefore, if you add a monthly automobile loan installment of 150 euros, your effort rate will be 34%, achieving approved credit.
But the client's risk profile is also analyzed, through verification of any non-compliance and their financial history at the BdP, age, client's income, and also their employment relationship. However, note that each bank analyzes proposals on a case-by-case basis and approval criteria vary.
In addition, it should be noted that car loans may have different conditions depending on whether the car is new or used. This is because if it is a used car, the conditions may be slightly worse. For example, for a financing of 5,000 euros with a repayment term of 24 months, for a new car, the APR can be 9.4% with a monthly installment of 224.50 euros, and for a used car, the APR can be 9.9% with a monthly installment of 225.57 euros. In other words, although these are illustrative data, as it will always depend on specific cases and banks, a loan for a used car will always be, initially, more expensive.
What to define before hiring automotive credit?
Before moving forward with hiring the car loan, you must define some aspects that will impact the conditions proposed by financial institutions.
For example, deciding whether to make a down payment on credit or request 100% financing. The more capital you provide initially and the lower the credit amount, the less you will pay monthly for the financing.
Afterwards, find out the financing term you want to access. If you choose the maximum term, your monthly installments will be more spread out, resulting in lower monthly payments. However, you will end up paying more interest in the long run, increasing the total credit amount.
Still, you must decide whether you want credit with a fixed or variable interest rate. Just like in a housing credit, if you opt for the variable rate, it is linked to the Euribor and subject to its fluctuations. Therefore, if Euribor rates go up or down, depending on the term you set, when your installment is reviewed, the same will happen to the monthly amount (rise or fall).
Although the fixed rate may be a higher value, it offers the same value throughout the entire contract, ensuring greater stability and predictability.
Furthermore, be aware that interest rates may be higher for the purchase of a used car than for a new car.
Finally, you also need to know that when hiring a car loan, the car is in the customer's name, but with a reservation of automobile property in favor of the financial institution (in the property registration title, the customer remains the owner). This is so that the bank protects itself, as if there is default, the financial institution can take the car, which it had as collateral. To prevent this from happening, you will have to hire a personal loan without a specific purpose - but with higher interest rates.
Talk to a credit intermediary from Poupança no Minuto to contract your car loan: We offer a free mediation service, handling all communication with banks, paperwork, and helping you choose the credit simulation that will make the most sense for you!
According to your needs and preferences, intermediaries find the conditions you are looking for, accompanying you throughout the process, until the money is available in your account! Simulate now!