You urgently need a car for commuting or because you are going to a flat? In most cases you will have to take out a loan for this. Even if you have savings, it can be interesting to keep that, in whole or in part, at hand. Which loans are customary in Belgium?
Use savings or not?
Because interest rates have been low for a long time, most Belgians prefer to borrow for the purchase of a car. However, low interest rates also mean that your savings hardly yield anything. The choice between borrowing and own resources is therefore not as easy as it seems. Much, if not everything, will depend on your personal and financial situation and your needs. In general it can be said that it is easier to get a loan when you have money aside than when you are in trouble. It can therefore be useful to hold a buffer and still take out that ‘cheap’ loan.
The classic car loan
The so-called classic car credit has become immensely popular in Belgium. The current attractive interest rate is somewhere in between, of course, but also the simplicity and the certainty. You know in advance where you stand. After accepting your file (including proof of purchase of your car), you will receive the loan amount that you will have to repay monthly (capital and interest) in equal amounts for the entire duration of the car loan. Easy enough.
Some lenders allow you to borrow more than 100% of the purchase value to cover insurance costs, road tax, etc. It is important to know that environmentally-friendly cars enjoy affordable rates, both in terms of credit, insurance and taxes.
A balloon loan is a form of car loan that has been more common in recent years. With this loan you only have to pay off part of the capital during the term of the loan. The remaining amount must be paid with the last monthly installment (“balloon”). The possible advantage of this is that it can help you to get your monthly budget around more easily initially. You must of course be careful that you can settle the outstanding balance at the end of the ride.
Borrow from the garage owner
Some garage owners offer very low interest rates for financing your new car, sometimes even at 0%. This seems very interesting because you only have to pay back the capital. No interest costs. However, borrowing always costs money … so where are the ‘hidden costs’?
Because the garage owner pays the interest costs, he will often limit the term of the loan, with the aim of limiting these costs. Your monthly repayments with a short-term loan will then be of a large nature. The commercial nature of this loan also means that the garage owner will not offer you any additional benefits on your new car. Often a larger advance payment is required and sometimes people try to undervalue your old car upon takeover.
So looking out is the message. As always, it pays to be properly informed and compared.