Car loan or installment plan which to prefer

A modern loan is issued according to a certain scheme, which consists of the following stages:
  1.  After the car dealership receives the initial payment (30% of the total cost of the car), the purchased car is given to the client.
  2.  The borrower's obligations are transferred to the bank, which pays the cost of the car to the car dealer.
  3.  The borrower pays the amount of the debt monthly.
Installment plan or car loan?

Many motorists ask themselves the question: what will be more profitable – the purchase of a car in installments or with the registration of a car loan? To get an answer, you need to have sufficient information and make some calculations.

If we decide to buy a car, the loan term will be from one year to three years. The first installment is at least 30% of the total cost of the car, the monthly installment is 1/12 or 1/36 of the loan amount. Payment of compulsory insurance will also be borne by the borrower.

Now you can calculate the approximate payments and expenses that the client will incur by registering the car in installments.

The initial payment upon purchase will be 30% of the cost. The total amount of the loan with the deduction of the contribution is 70%. During the specified loan period for the first year, the client will pay an amount equal to approximately 25%. The total expenses incurred by the car owner for the first year will amount to about 65%. Insurance will cost 5%.

To this amount, you can add the costs associated with the registration and maintenance of a credit account. Thus, in the first year, the borrower will have to pay an amount that will be more than half of the cost of the purchased car.Expenses for the second year will consist of insurance payments and general payments. Over the next 12 months, the borrower will pay a similar amount.

Now let's calculate what expenses the car owner will incur if he takes a car loan from a bank.

In this case, he will pay a smaller down payment amount – about 15% of the total price of the purchased car. The interest rate will be approximately 15% per year. The term for which the loan will be issued, on average, will also be 3 years.

In the first year, the borrower will have to pay the initial payment, and the remaining amount will be 85%. The expenses that will be associated with the registration of insurance will cost 2%; the annual payment is about 35%. The total cost of a car loan for the year, therefore, is approximately 50%. During the second year, the client will pay approximately 30% for the loan and 2% for insurance. During the next one, you will need to pay about 28% for the loan. You may notice that over time, the amount of monthly payments on the car loan will decrease.

Which option should I still prefer?

If we analyze the situation, it becomes clear that the installment plan is more profitable for the borrower. However, for its registration, you need to have a large amount for the initial payment. Buying a car will be possible only if the borrower has the necessary funds in advance. Usually a car loan with an interest rate is more profitable for the borrower if the latter does not have enough money to make an initial payment, since the loan repayment for the first year will be less than half of the cost of the car.

Thus, having a large amount that will allow you to make an initial payment and pay off the loan every month without any problems, you can safely apply for an interest-free loan. However, before making this decision, you need to weigh all the pros and cons and accurately calculate your financial capabilities so as not to remain without means of livelihood in the future.