You have found the car of your dreams and like most people you are wondering what is the best financing method for its acquisition? There are many financing methods and each of them corresponds to a particular type of profile.
Auto or assigned credit
Allowing you to take out a loan covering up to 100% of the purchase, auto credit has long been the majority among buyers of new and even used vehicles. In order to reduce the monthly loan payments, it is recommended to add a personal contribution.
The car loan is said to be affected because the amount of the purchase, which is allocated by a bank or an independent credit institution, is paid directly to the seller, upon delivery of the vehicle. Therefore, the sale is simply canceled if the credit cannot be obtained.
Unlike auto credit, the allocated funds are made available to the borrower. Therefore, he is free to use them as he wishes, for example to buy things that have nothing to do with the car.
A solution suitable for people who wish to acquire a new vehicle, but even more so for those who want a used vehicle which generally requires various minor repairs. However, note that as soon as the amount is paid into the borrower’s account, repayments will be due.
Lease with option to purchase (LOA)
Also called leasing, the LOA is a contract that allows you to rent a new car for a predefined period, by making fixed monthly payments. At the end of the contract, which generally lasts 2 to 6 years, you have 2 options: become the owner of the vehicle by buying it at the price agreed in advance, or renting a new vehicle.
Note that the total cost of an LOA is higher than that of a credit. But on the other hand, the LOA gives you access to more upscale vehicles and many services that you could not have with a conventional loan.
Long-term rental (LDD)
Long-term leasing, as its name suggests, consists of leasing a new car over a defined period, which generally varies from 1 to 6 years. It is similar to the LOA, with the only difference that it is not possible to acquire the vehicle at the end of the contract. Therefore, this method of financing is recommended for people who wish to change vehicles regularly and who do not attach importance to owning their own car.
Balloon credit: a mix between LOA and assigned credit
If you are hesitating between assigned credit and a rental with option to buy, then balloon credit is probably for you. As for an LOA, the duration of the contract and the redemption price are defined at the start of the contract. A sum (the balloon) representing 5 to 20% of the purchase amount will also be required.
And with this method of financing, we are no longer talking about rent but rather monthly payments, which are lower than those of a car loan (because only the interest is reimbursed). Basically, balloon credit is recommended for people who want to change vehicles regularly without having to pay too high monthly payments.