Vehicle finance refers to various financial products that allow someone to buy a car, including car loans and rentals.
The most common way to buy a car in the USA is to lend money and then repay it in installments. More than 85% of new cars and half of used cars are funded (as opposed to a one-time cash payment). About 30% of new cars are rented during the same period.
There are two main ways to borrow money to buy a car: direct and indirect. Direct loan is when the borrower makes an agreement with the lender directly. Indirect (indirect) financing is organized by a car dealership where a car is purchased. A legally indirect “loan” is technically not a loan; when a car buyer receives financing with the assistance of a dealer, the buyer and dealer sign an installment contract, rather than a loan agreement. The dealer then usually sells or cedes this contract to a bank, credit union, or other financial institution. Typically, the dealer knows in advance which financial institution will buy the contract. The borrower then pays the financial institution in the same way as for a direct loan. Typically, an indirect car lender sets the interest rate, known as the “purchase rate”. The car dealer then adds a mark-up to this bid and presents the result to the client as a “contracted bid”. These markups have been the focus of attention of some regulators, as they can cause fluctuations in interest rates that are not related to credit risk.
Approximately half of the new cars in the USA are financed by funds allocated by captive financing tools of car manufacturers, such as the Ford Motor Credit Company. Captives have a smaller share of the total car financing market (new and used), along with banks, credit unions and financial companies. A small number of cars are financed directly through dealerships “Buy Here Pay Here”, which serve customers with subprime loans. The financing of Buy Here Pay Here dealerships is 6% of the total funding. Options for financing cars in the UK also include loans for car purchase, installment purchase, rental, leasing and personal contractual purchase.
A lease is a contractual agreement between the lessor (the person who owns the property) and the tenant (the person who receives the right to use it during the lease term). Typically, a car rental allows a tenant to drive a certain number of kilometers by car for a certain number of years.
The tenant pays a fixed monthly fee for the privilege of driving a vehicle, and when the rental ends, the tenant returns the vehicle to the lessor. Rental rates are based not only on how much the car costs today, because the tenant does not buy the whole car. Instead, the lessee pays only for the cost of the vehicle during the rental period. Lenders calculate rental payments based on the residual value of the vehicle or how much they estimate the car will cost after the lease ends.
Spot delivery is a term used in the automotive industry that means the delivery of a vehicle to a customer before the financing of the vehicle is completed. The spot delivery is used by dealers on weekends or after hours to be able to deliver the vehicle when final approval cannot be obtained from the bank. This delivery method is regulated by many states in the United States, and is sometimes referred to as “yo-yo selling” or “yo-yo financing”.
The advantages of getting vehicle finance
- Profitable terms. The percentage varies depending on the type of loan, the loan amount and the liquidity of the car provided. There are many financial organizations providing vehicle finance, so we can always find the most favorable conditions;
- High assessment. When evaluating a car, the real value of the car is taken into account. If you do not agree with the assessment made by a specialist, your arguments will be considered and an additional amount will be issued to you as a result;
- Customer focus. Some companies are waiting for you to make a late payment in order to charge you a penalty and foreclose on the car. But in the case of objective difficulties, many lenders provide a prolongation of payments and in the most difficult situation you will always find an acceptable solution!