Car loans: financing that gets you on the road

Ready to purchase a new car? You might be wondering how to pay for it. Financing options depend on the type of vehicle, type of use, and your personal preferences and plans. Find out here if a car loan is the right solution for you.

Overview:

• What is a car loan?
• When does it make sense to take out a loan for buying a car?
• What are the advantages of car loans?

What is a car loan?

A car loan is a loan that you can take out to finance the purchase of a vehicle. In fact, for most lenders, car loans are the same as personal loans. This means that the loan isn't tied to your car purchase: you can basically use the amount for whatever you want. The term car loan is used in order to highlight the differences and advantages compared to a car lease.

In most cases, a car loan is the same as a personal loan. This means that you could also use the loan for something other than buying a car. Lenders simply call it a car loan for marketing purposes – and to highlight the differences and advantages compared to leasing a car. This also applies to the product “Cashgate Credit Drive” for instance: although the name suggests it's a special car loan, it is no different than other Cashgate products.

In Switzerland there are currently two loan options specifically for purchasing a vehicle. Unlike standard personal loans, these are strictly car loans that must be used for buying a car and can only be obtained from an authorized dealer. The amount of the loan is transferred to the dealer instead of the borrower.

• Cembra Financing Plus car loan (for used cars)
• BCGE car loan (offered by Banque Cantonale de Genève)

The main difference with these dedicated car loans is that the car acts as a seizable asset in case of non-payment – the same as with leasing plans. This has an impact on how the lender assesses the risk of the loan and the eligibility criteria for the borrower.

Dedicated car loans are tied to the underlying seizable asset (in this case, the car) and come with additional requirements. In the case of Cembra, these requirements are as follows:

• "Code 178: Change of keeper prohibited" applies, which means that you are not allowed to sell the car (the same as with leasing).
• A retention of title will be registered for amounts of CHF 25,000 and above. 

At 7.95% or 9.95%, the interest rates for Cembra car loans are no cheaper than Cembra personal loans.

When is it worth taking out a car loan?

When buying a car, you have the option of paying in cash, entering into a leasing agreement or taking out a car loan. Paying in cash is definitely the cheapest option, but the funds aren't always available. If your budget is tight, it makes more sense to take out a loan to buy a used car instead of leasing a new car. This means that most cars bought on credit are vehicles for everyday use, not luxury purchases. 

Reasons for taking out a car loan:

• You can't wait to make the purchase. 
• Your family is about to grow.
• Your current car broke down. 
• You don't want to dip into your savings.

What are the advantages of car loans?

The vehicle financing options described above are personal loans, car loans and leasing.

Here's an overview of the differences:

Taking out a loan to purchase a car also has the following advantages:

• The car is not linked to any financing agreement.
• No calculation of residual value or pre-emption right.
• Debt interest can be deducted from your taxes.
• You always have the option of paying back the loan early.
• Unlike leasing, there are no additional costs when terminating the contract.