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When the time comes to buy a car, whether new or used, many people are faced with the question of how to pay for the car: equity, car loans, leasing or personal loans?
Buying a car using financing is a very common option. As the cost of the car can be high, it is natural that it is not possible to pay the entire cost at the time of purchase.
In addition, there are those who choose simply to resort to some type of financing for the advantages associated with this modality (yes, there are advantages).
However, there are different types of financing for the purchase of a car and to make the most of the potential of each one, you need to know what exactly they consist of and what are their advantages and disadvantages.
In this article, we will focus on three types of financing: car loans, leasing and personal loans. We will explain what each one consists of, what situations they are best suited for, and what precautions to take.
Choose the most suitable type of financing for you and proceed in a safe and informed way towards the purchase of the car of your dreams.
Car credit, leasing or personal credit: discover 3 options
Have you already decided which car you want to buy, but are not sure which financing method is most suitable for your situation? The ideal would be to pay as little interest as possible, and be able to pay off the car as quickly as possible.
Before entering into any contract, be it car credit, leasing or personal credit, make sure you are familiar with the conditions so that you don’t have negative surprises later.
Also calculate your effort rate and car charges (insurance, maintenance, taxes, others), to ensure that you are able to support the financing payment and everything that is inherent to the car.
Car loan: advantages and disadvantages
Car credit is most common car purchase financing model in Portugal. However, that doesn’t mean it’s the best for you.
This financing model can be used to buy a new or used car. In addition, car credit is often provided by the dealership or stand itself, that is, they already have a partnership with a credit institution and pre-defined financing conditions.
Although car credit can be “easy” to obtain at the dealership or stand, you should always simulate car loans with various financial institutions, or even with your bank, to see if the conditions are more advantageous.
Generally, in car credit agreements, the title of vehicle ownership registration is in the name of the buyer, but it is mentioned that there is a reservation of ownership in the name of the financial entity.
In this way, the buyer is effectively the owner of the vehicle from the moment of purchase, but, until the end of the credit agreement, he cannot, for example, sell the car without authorization from the credit institution.
It is also possible to take out a car loan without reservation of ownership. However, in these situations it is common for the financial institution to request some type of guarantee (eg a guarantee).
Carrying out a car loan agreement does not require you to take out your own damage insurance, unless this is required by the institution that will finance the purchase of the car.
Advantages and disadvantages
| Advantages of car credit | Disadvantages of car credit |
| Can be used to buy new or used cars | Interest rates may be higher than other types of financing |
| The buyer is the owner of the car from the moment of purchase | There may be reservation of ownership in the name of the credit institution |
| Possibility of financing up to 120 months | |
| Possibility of hiring a fixed or variable interest rate | |
| Debt amortizations can be made to reduce the amount of interest payable | |
| There is no need to take out your own damage insurance |
Leasing: advantages and disadvantages
Unlike car credit, in the leasing modality, the credit institution is the owner of the vehicle.
The same credit institution assigns, in exchange for a monthly payment, the use of the car to the customer.
This modality requires the conclusion of a contract with an indication of its duration, initial entry (which may or may not exist), interest rates and other commissions, monthly fees and residual value.
At the end of the contract, if interested, the customer can buy the vehicle paying only the residual value defined at the beginning of the contract. If not, the car is simply returned to the financial institution. It may also be possible to exchange the vehicle for a newer one.
Leasing generally has lower interest rates than car loans, which turns out to be quite advantageous in some cases.
In addition, there is exemption from the payment of stamp duty on the opening fee and leasing interest, and for companies, leasing has several other tax benefits.
However, this modality is only an option when it comes to new vehicles, and requires taking out your own damage insurance.
Advantages and disadvantages
| Advantages of leasing | Disadvantages of leasing |
| Financing of up to 100% | The consumer is not the owner of the car. |
| low interest rates | Only applicable to new cars |
| Possibility of purchase at residual value or exchange for another vehicle | Requires taking out own damage insurance |
| Exemption from stamp duty on opening commission and leasing interest | high commissions |
| Tax benefits for companies |
Personal credit: advantages and disadvantages
Personal credit is another option for buying a car, although it may not be very advantageous.
The interest charged in this modality is normally significantly higher than those charged in car loan or leasing contracts.
However, this type of credit is easier to obtain and the payment terms are quite long, thus reducing the monthly fee (but increasing the amount of interest payable).
Advantages and disadvantages
| Advantages of personal credit | Disadvantages of personal credit |
| Ease of obtaining credit | high interest |
| High payment terms | |
| Can be used to buy new or used cars | |
| The buyer is the owner of the car from the moment of purchase |
Conclusion
Looking at the article, you now know these are the three most common financing possibilities in Portugal.
Understanding what it is, how they work and what are the advantages and disadvantages of each one of them, it now remains to choose the modality that becomes more advantageous for you and your needs.
For some it may be more beneficial to obtain credit more easily, for others it may be more advantageous change car more frequently.
So, as you can see, the ideal is to think about your needs in the short term, but also in the long term and make the most appropriate choice for your situation.
