Buying a car on credit, what are the constraints?

Buying a car on credit allows you to spread your expenses over a number of years. Admittedly, this type of purchase is often considered a pleasure purchase, responding to a desire, a particular need. While it is relatively easy nowadays to obtain a car loan, know that this type of financing does not present only advantages.

A commitment over several years

We do not always think about it at the moment, but a purchase on credit means that we commit to paying a certain number of monthly bills for many years. With an average of 48 to 60 months for auto loans, this is a medium-term commitment that can turn into a nightmare in case of difficulties. The credit binds the borrower to his creditor by a signed contract. When borrowing, we do not know what will be his financial situation in a few years.

Good to know: To minimize the risks associated with non-payment of credit, it is strongly recommended to take out insurance, even if it is often optional.

Additional fees

Who says credit, says interests, fees, etc. Know that the longer your credit, the more interest you will pay. If the application fee is payable only once, the amount of interest is added to the monthly payments for the duration of the credit. If you add the amount of the insurance premium, the total cost of credit far exceeds the purchase price of your car. It is useful to compare different offers before buying a car loan, interest rates may vary from one company to another. If extending the term of the loan decreases the amount of monthly payments, the interest rate will necessarily be higher.

Good to know: Since May 2011, the Consumer Code better protects borrowers who have a withdrawal period of fourteen days instead of seven before, for sums less than 75 000 €. This delay may allow the consumer to find more advantageous financing if necessary.

The risk of default of the borrower

The consumer who takes out a car loan does not know what will be his situation in a few years. The vagaries of life can unfortunately change the “deal” of departure and cause difficulties to honor its commitments. The subscription of an insurance has a certain interest to limit the risks related to the payment of the credit. Not to neglect !

The risk of over-indebtedness

To subscribe a credit obliges to repay a debt towards its creditor. The risk associated with the ease with which it is sometimes possible to obtain a loan can cause situations of over-indebtedness. Respecting a debt ratio – all loans combined – around 30% ensures a certain financial stability. Unfortunately, some credit companies provide loans with higher rates than others. This facility has the risk of driving the consumer into an infernal spiral, to the point of taking out a loan to repay another, until he can no longer repay his debts.

The risk of financing a car that we no longer have

If changing the car is a pleasure, it may not be the case after a few years, either because you want to change or because the family situation has changed with the arrival of children for example . In many cases, a new credit is taken out as the amount of the sale does not make it possible to pay cash for the new vehicle. And we end up with a second credit and a debt all the more important.

Good to know: This risk is also present in case of financing of old vehicle or heavily mileage whose life may be less than the duration of the credit.

Buying on credit makes it possible to satisfy a punctual need, to give pleasure to oneself, to offer oneself a good normally inaccessible … Certainly, the pleasure always accompanies this kind of purchase, in particular when it is about a new car. But think about your repayment abilities. Moreover, besides monthly payments of credit, a car generates many additional costs such as the fuel budget, the cost of maintenance, as well as insurance costs. Think about it!

Key points to remember: – Check your repayment capabilities. – Compare the offers (withdrawal period). – Attention to over-indebtedness.

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