The car loan falls into the category of consumer credit. By nature, this type of credit is opposed to real estate credit which makes it possible to finance the purchase of a property (houses, apartments, etc.). Consumer credit is granted by banking or financial institutions. It will address consumers (individuals) as part of their purchases of consumer goods (automobiles, appliances, etc.). French regulations specify that the amount of this credit can be between $ 200 and $ 75,000. The repayment period must be greater than 3 months. Consumer credit is generally offered by organizations specializing in this type of service. This type of service commits the borrower financially and precautions must be taken by professional bodies. To avoid hiring too much, a statutory withdrawal period is planned. It is a minimum of 7 days and is extended to 14 days as part of a remote subscription (by phone or internet). The funds will not be released until the expiry of this period. In order to dispose of funds more quickly, the borrower may waive this right of withdrawal.
Car loan requires financial guarantees from the consumer
Depending on the type of financing chosen, the lending agency will carry out various checks to verify the creditworthiness of the borrower. These measures aim to prevent over-indebtedness of households. The praetor agency will notably inquire about the composition of the household and the different fixed incomes of the household. Situations will be favored for obtaining auto credit. The CDI is not mandatory but it is preferable for example. The agency will also have to calculate the household debt ratio by comparing fixed monthly expenses and household fixed incomes. If this ratio is too important (if the expenses represent too much of the household income), the car loan may be refused to the borrower. The number of indebtedness files filed increases each year in France. Between 1990 and 2015, the number of files filed increased by 140%. French people tend to over indebt themselves. It is up to financial organizations to set certain limits in order to limit drift. Too easy access to credit (auto credit or not) may contribute to the increase in the number of households over-indebted, consumers are not necessarily aware of their financial commitment.
The car loan is a consumer credit since it can finance the purchase of a consumer good
In France, nearly one out of two consumer loans is spent on the purchase of this property. The advantage for the consumer to use this type of financing is on the one hand not to use all of his available savings. Some households have sufficient capital to buy a vehicle, but still choose to turn to auto credit. Indeed, although self-financing is attractive, it is sometimes safer not to spend all of your savings in one purchase. On the other hand, the purchase of a car represents for many households an important part of their budget. They can not often finance it on their own funds. Auto credit is therefore a necessity.
There are different types of auto loans for individuals wishing to purchase a vehicle. These auto loans will generally present the same financial commitments for the borrower. The different loan rates may however vary depending on the type of financing chosen. The choice of the borrower will generally depend on his various wishes including the immediate ownership or not of the vehicle and a new car or a used car. Some financing methods are specific to the purchase of a new vehicle.
Thus the Lease with Purchase Option (LOA) is a mode of financing allowing individuals to acquire a new vehicle. This is the equivalent of “leasing” which is only for professionals. It offers consumers different options: become owner by paying all of the remaining sum, return the vehicle or take another vehicle. Dealers and financial organizations offer Lease with Purchase Option. An initial financial contribution is recurrently necessary. This contribution will represent a maximum of 15% of the purchase price of the car, it can act as a deposit and be returned to the consumer who chooses not to buy the vehicle. A contract will be signed between the parties. It will determine the monthly payments due by the consumer for a period that will vary between 24 and 72 months. This type of auto loan is primarily intended for consumers who want to change cars regularly and do not want to be the owner of the car immediately.
The balloon credit is also a type of auto loan to finance the purchase of a car.
It is mainly used for new cars but can also be used for used cars that are often very new. It allows to finance a part of the initial value of the vehicle. The monthly payments will therefore normally be less important than that of a LOA because the consumer does not commit to the entire value. The contract will provide for a fixed period of between 12 and 48 months and a maximum kilometric rate to be respected. This credit allows its term either to return the car or buy it back by paying the remaining amount. This type of credit is little used, the LOA being preferred by consumers such as automotive sales professionals.
To finance the purchase
the consumer can choose the credit allocated. The credit assigned has the particularity of being associated with the purchase of a very specific good or service. Thus the auto-assigned credit is subordinated to the purchase of a car. This credit generally allows the acquisition of a new car but can be used for the purchase of used vehicles. It allows the purchaser to benefit from security in case of default of delivery of the vehicle for example. Thus, if the vehicle is not delivered or if the sale is not finalized, the car loan is canceled. In the same sense, the sale of the car may be subordinated to the granting of the car loan. If credit is not granted to the borrower, the sale of the car can be canceled without affecting the borrower. However, this subordination must be specified in the sales contract. In fact, the situation occurs regularly insofar as the praetor agency is often the dealer selling the vehicle. The consumer is not therefore financially committed until the sale is made. The maximum duration of the contract will be 84 months and the amount lent may not exceed 75 000 $. The creditworthiness (the capacity of refund) of the consumer will be obligatorily checked by the praetor organization. The credit can be refunded in advance under certain conditions. With this type of financing, the consumer becomes the owner of the vehicle as soon as it is delivered.
The use of the personal loan is most often used
With this credit, the consumer is not obliged to specify the nature of his purchase to the lending institution. Indeed, he is free to dispose of the sum lent and is not forced to use it for the purchase of a car. This may seem like a disadvantage since the release of the funds does not depend on the good delivery of the car. The consumer will have the amount borrowed even if the sale of the vehicle is not finalized. The personal loan will have to be reimbursed by the consumer whether the vehicle is delivered or not. Like the self-assigned credit, the monthly payments of the personal credit can be repaid early under certain conditions. For the purchase of a used car from individual to individual, only the personal loan can be used by the purchaser to finance his purchase. Indeed, the car loan can be granted only when the consumer makes his purchase from a professional (car dealership).
Long Term Rental (LDD) is not considered a car loan but can be used by the consumer. This is not a credit since the consumer will never own the vehicle even at the end of the contract expiration. However, it may be an alternative solution offering the opportunity to the individual to have a new vehicle without becoming the owner.
Several financing solutions are available to consumers wishing to acquire a vehicle
Since 2015, the Lease with Purchase Option (LOA) is privileged to the credit assigned to the car by the French Like all the credits, the auto credit has advantages but also disadvantages. The borrower must be aware of his commitment to the lenders. Although sometimes the amount of the auto loan is not too high, the financial organizations are obliged to make a selection and not to grant credit to people who are not solvent.