Car loan. What do banks expect? What are the types of collateral for a car loan? What do you need to pay attention to? What is the difference between a car loan and a car loan?
People planning to buy their own car can basically choose between two types of bank loans. The first is a targeted loan (car loan), and the second is a non-targeted loan, which is a typical consumer loan. Among other things, they differ in their purpose, but also in the interest rate and possible collateral.
Car loan vs. cash loan?
Car loan is one of the most popular loans taken out across the country. It is used by both consumers and businesses. Thanks to its low cost, a car loan can be more profitable than a cash loan (a consumer loan that can be used for any purpose).
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A car loan is granted only for the purchase of a vehicle specified in the loan agreement, and is characterized by the fact that the bank will put collateral on it. In the case of cash loans, as a rule, collateral is not required, unless we are dealing with a large amount and show a relatively high risk for the bank.
Types of collateral for a car loan
As we wrote above, a car loan involves the need for collateral, usually on the vehicle purchased/financed by the bank. In Poland, two types of collateral for car loans are most commonly practiced. Registered pledge and transfer of ownership as collateral. We describe each of them below, but it is worth adding that regardless of which one the car loan will be subject to, banks may also expect the purchase of an additional AC policy, which also protects the interests of the institution.
Car loan – transfer of ownership as collateral
One of the most commonly used collateral for car loans is the transfer of collateral. It consists in the fact that the bank, financing the purchase of a vehicle, such as a car, motorcycle, ATV or campervan, automatically becomes its co-owner until the borrower pays off all installments of the obligation.
This form of collateral for a car loan involves the bank’s entry, as co-owner of the vehicle, in the registration certificate. In turn, this effectively prevents the sale of the vehicle without the knowledge / consent of the bank. Naturally, it is possible to sell, for example, a car with a loan, but the bank must agree to this.
Car loan – registered pledge
Another car loan collateral, also often practiced, is a registered pledge. This type of collateral consists in the fact that the bank, when granting a car loan, will require a so-called pledge agreement with the borrower. On the basis of it, it will make a registered pledge on the vehicle in question at the registry court.
If the borrower ceases to pay car loan installments, the bank has the right to seize the vehicle, sell it, and then recover the funds thus put up. It is worth noting that quite often a registered pledge is associated with the bank’s retention of the vehicle card. The fact of security in this form, as in the case of transfer of ownership, will appear in the vehicle registration certificate.
Security for a car loan – AC policy
In addition to one of the two forms of security for a car loan mentioned above, banks also expect the purchase of an additional AC policy. Thanks to it, or more precisely, thanks to the execution of an assignment of the AC policy to the bank, in the event of total damage or theft of the vehicle, the bank will recover its money.
The cost of AC insurance is naturally covered by the borrower, very often paying it together with the loan installments. However, the AC policy protects not only the interests of the bank, but also of the borrower himself, because in the event of damage or theft of the car, motorcycle or ATV, the insurer will pay compensation, and thus, there will be no need to pay the full amount of the loan for the vehicle, which we no longer physically use.
Car loan vs. car loan. What is the difference?
We’ve already briefly described it in the introduction, but it’s worth taking a closer look at the difference between a car loan and a marketing “car loan.”
A car loanis a typical purpose loan, that is, one that is used exclusively for a specific purpose. It can be not only a car, but also a motorcycle, quad, scooter, motorhome or even a motorboat. It all depends on the bank’s policy, but it is assumed that a car loan can be used to finance any vehicle that has a registration certificate. Banks usually place restrictions mainly on the age of the vehicle.
Acar loan is usually just a marketing ploy to attract more customers in order to sell them a cash loan without collateral. Keep in mind that loans secured by, for example, real estate (mortgages), or the vehicle just financed(car loan), are simply much cheaper, and thus banks make far less money on them. A car loan can be as much as twice as expensive as a car loan.
