How to hire a car loan?

Want to buy a car through car credit? Credit intermediaries from Poupança no Minuto gather various bank proposals and help you decide on the best conditions for you. Find out how this credit works.

What is an auto credit?

Do you want to hire a car loan? You can proceed if it is a new or used car, as long as you meet the requirements requested by the banks.

By hiring this type of financing, the financial entity keeps ownership/mortgage reserve of the property.

This is a personal loan for the specific purpose of a car and is one of the easiest to contract, being able to obtain financing up to 100% with terms up to 120 months (10 years).

The conditions will depend on the proposals presented, according to the amount of financing needed, the financing term chosen, as well as the year of the car, and the interest rates applied to the credit. Therefore, you should always request several simulations from different banks to compare and have the most suitable proposal for you!

What are the requirements to access an auto loan?

In order to access this credit, have financing approved with better conditions, banks evaluate your effort rate and risk profile.

The effort rate is calculated based on your monthly income versus the monthly credit installments you have contracted, to understand the additional weight that another installment will have on your budget. This is how the bank analyzes whether you have the financial capacity to support another monthly expense.

The ideal effort rate, according to the Bank of Portugal (BdP), should be up to 35%, with the following calculation formula:  

[Total of installments/Household income] x 100 = Total in percentage      

In other words, if you have a housing loan contracted and pay 400 euros monthly for it, receiving a monthly net income of 1,600 euros, your effort rate will be 25%. Therefore, if you add a monthly car loan installment of 150 euros, you will have an effort rate of 34%, being able to get approved for a loan.

But also the client's risk profile is analyzed, through the verification of any default and their financial history in the BdP, age, client's income and also work relationship. However, note that each bank analyzes proposals on a case-by-case basis and approval criteria vary.

In addition, it should be noted that car loans can have different conditions depending on whether the car is new or used. This is because if it is a used car, the conditions may be slightly worse. For example, for a financing of 5,000 euros with a repayment term of 24 months, for a new car you may have an APR of 9.4% and a monthly installment of 224.50 euros, and for a used car an APR of 9.9% and a monthly installment of 225.57 euros. That is, although these are illustrative data, as it will always depend on specific cases and banks, a loan for a used car will always be, in principle, more expensive.

What to define before hiring car credit?

Before advancing with the hiring of car credit, you must define some aspects that will impact the conditions proposed by financial institutions.

For example, decide whether you want to make a down payment on the credit or if you want to request financing for 100%. The more capital you make available initially and the lower the credit amount, the less you will pay monthly for the financing. Credit amount.

Afterwards, understand the financing term you want to access. If you want the maximum term, the monthly installments will be more spread out and you will pay less per month, but you will end up paying more interest in the long run, increasing the total credit amount.

Still need to decide whether you want credit with a fixed or variable interest rate. Just like in mortgage loans, if you choose a variable rate, it will be linked to Euribor and subject to its fluctuations. Therefore, if Euribor rates go up or down, depending on the term you set, your installment amount will also change accordingly when it is reviewed (increase or decrease).

Although the fixed rate may be a higher value, it offers the same value throughout the entire contract, ensuring greater stability and predictability.

Furthermore, know that interest rates may be higher when buying a used car compared to a new car.

Finally, you also need to know that when hiring a car loan, the car is registered in the customer's name, but with a reservation of automobile ownership in favor of the financial entity (in the ownership registration title, the customer remains the owner). This is so that the bank can protect itself, as if there is default, the financial entity can take ownership of the car, which it had as collateral. To prevent this from happening, you will have to hire a personal loan without a specific purpose - but with higher interest rates.

Talk to a credit intermediary from Poupança no Minuto to hire your car credit: We provide a free mediation service, dealing with all communication with banks, paperwork, and helping you choose the credit simulation that makes the most sense for you!  

According to your needs and preferences, intermediaries will find the conditions you are looking for, accompanying you throughout the process, until the money is available in your account! Simulate now!