Maja works as a salesperson at Niemi Bil in Luleå. She has helped hundreds of people finance their car purchases in a safe way that suits them best.
Financing a car purchase, i.e. taking out a car loan, is the best option for most people. But what does that mean and how does it actually work? Don't worry, Maja answers the most common questions!
What is the advantage of financing the car with a car loan?
The biggest advantage is that you don't have to spend a large sum of money all at once. You can leave your money in your savings or mutual fund account, and pay a smaller amount each month instead.
How your car loan is affected if the interest rate changes
It is true that interest rates can rise and fall, but the bulk of a car loan is the amortization, which means that even if the interest rate increases by one percent, it will not affect the total monthly cost by more than a few kronor. If we imagine that you take out a car loan where the loan amount is 100,000 kronor, the monthly cost would look like this if the interest rate changes:
How long does it take to pay off the loan?
It depends on the length of the loan term you choose. A longer loan term means a lower monthly cost, but also more interest payments. This means that you will pay a little more overall for a loan with a long loan term than a loan with a short loan term, but have a lower monthly cost.
Usually, a loan term is between 36 and 72 months, the important thing is that you have a monthly cost that you are comfortable with. How long a loan term you can have depends on the age of the car, among other things.
How do you get a car loan?
Those who work at a car dealership often have a lot of experience with car loans and financing. Car dealers have good contact with various lenders with whom they collaborate to help customers.
Does the interest rate differ between different lenders?
Often, the different lenders have very similar interest rates, and you will have all information about any differences between the lenders explained to you before you choose who you want to borrow from.
Can I change my loan while I'm paying it off?
Some lenders allow you to make extra payments to pay off the loan faster. But most often, the terms you agreed upon when you signed the agreement apply throughout.
How does this work with residual value?
Residual value, or residual debt, is the part of the car purchase that you have not included in the loan or paid off with a cash deposit, and therefore remains when the loan period ends. Let's say that the car you intend to buy costs SEK 150,000, and the residual value is calculated at SEK 50,000, in this case you borrow (and pay a cash deposit for) SEK 100,000. After the loan period, the residual debt remains, so it is good if the residual debt is not higher than what the car is worth at the end of the loan period, so that you do not have any debt left if you sell or trade in the car for a new one.
My car loan is expiring soon, what do I do now?
If you have a residual value on your car, it may be a good idea to consider whether you want to buy a new car or whether you want to buy the car outright. If you have no residual value on the loan, your interest payments and amortizations will cease, and you will have no debt left when the loan period ends. In any case, this is a good time to review your car ownership, maybe it is a good time to trade in your car for another? It does not have to be more expensive just because you change cars, usually the car dealer can help you come up with a monthly cost that feels good to you.
| Amortization | the repayment of the money you borrowed. For example, if you have borrowed 100,000 SEK, you must also pay back 100,000 SEK. This is the repayment itself. |
| Interest | The cost of borrowing money – you pay back a little more money than you borrowed, the extra cost is called interest. If you borrowed 100,000 SEK with 10% interest, you will pay back 110,000 SEK. So 100,000 SEK in amortization and 10,000 SEK in interest. |
| Loan period | The period of time over which you repay the loan. When the loan period (e.g. 36 months) is over, you have paid all the interest and repaid (amortized) the entire amount borrowed. All that remains is any residual value. |
| Residual value | The residual value, or “residual debt,” is what remains to be paid for the car at the end of the loan term. You can do this either by taking out a new loan, paying the full amount in cash, or trading the car in for another one (just remember that the residual value is deducted from the total value of your car when you trade it in). |
| Cash stake | If you want to pay some of your own money so as not to have to borrow an equal amount, you can make a cash deposit. If the car you are going to buy costs 100,000 SEK, and you put in 20,000 SEK yourself, you only need to borrow 80,000 SEK. We can also trade in your old car when buying, in which case its value will count as your cash deposit! |
| Lender | The company you borrow money from, usually a bank, is called the Lender. The car dealer can handle the contact with the lender for you, but it is not the car dealer you borrow money from. |
Do you have more questions?
You can always contact us to talk more about car purchases and the financing solutions we provide.
Is your car loan about to expire? Then it might be time to review whether it's a good time to change cars. Here you can see all used cars in stock.
Maja Johansson – Niemi Bil Luleå
Phone: 0920-23 00 88
E-mail: intresse@niemibil.se
Niemi Bil – Sweden's biggest heart for cars
