If you’re thinking of buying a car and don’t have the money set aside to do it upfront, that is, without resorting to credit, you’ve certainly thought about the best financing option: a car credit, leasing, renting or long-term rental (ALD).Before you decide, know the characteristics of each type of financing so you can choose the one that best suits your wallet.
What distinguishes the financing modalities
First of all, note that car credit, leasing and long-term rental are, in fact, financing and renting solutions is not🇧🇷 Thus, the former are supervised by the Bank of Portugal while renting is not. differ as to the actual ownership of the vehicle🇧🇷 In other words, depending on the option you take, the car can be yours right away, be yours only at the end of the contract or not even become yours. insurance, the Single Circulation Tax (IUC) and the revisions they are your responsibility, in others they are the responsibility of the financial entity.Read more: Are you thinking of buying a car? What you need to know before deciding
car loan
This is perhaps the most popular form of financing when you want to buy a car, whether new or used. It has, normally, a maximum term of 10 years (according to the guidelines of the Bank of Portugal – BdP), but you can do it for a shorter term. Car credit is classified, by the regulator, as consumer credit if its value is up to €75,000, and it is the BdP that sets the maximum rate applicable to these contracts on a quarterly basis. Note, the maximum interest rate differs if the vehicle is new or used, in the latter case higher, but it applies to both new and existing contracts.
When requesting a credit, you must give the FIN
When requesting credit, you will be given a Standard Information Sheet (FIN) which will contain all the conditions of your financing, the annual interest rate (TAN) as well as the Annual Global Effective Charge Rate (APR) which will include not only interest but also all charges that will be charged to you. Note, the FIN has the same structure regardless of the financial institution to provide you and to compare proposals you should look at the APR. When your car loan is approved, you must sign a credit agreement with the entity that grants you the financing, which will contain the financing conditions: amount, interest rate, term and repayment plan.
If you use this type of financing, you own the vehicle. That is, the car is registered in your name and you are responsible for paying all the expenses involved: the mandatory insurance, the Single Circulation Tax (IUC) as well as all maintenance costs.But beware, you may not have the car freely. That is, if you want to sell, you may need authorization from the financial entity (depending on whether or not it has done so). reservation of ownership in your favor).In fact, the financial entity may impose a reservation of ownership as a guarantee of payment. That is, you can register a right over the vehicle at the competent registry office. In case of default of the payment plan defined in the contract to financial entity will assume ownership of the car.But they can also grant the loan without reservation of title. In this case, they can ask you for another type of guarantee, such as promissory notes or guarantees.Also read: Electric cars: Advantages and disadvantages to consider before purchasing
car leasing
Leasing is another way to finance the purchase of your vehicle and also applies to new or used vehicles🇧🇷 You can negotiate the term of the contract and, usually, ranges from 24 to 48 months.This type of financing also fits, from the point of view of Banco de Portugal, in the category of consumer loans. For this reason, the maximum rates to be applied in leasing operations for new or used cars are published quarterly. Also similar to car credit, these rates apply to all contracts (new and ongoing).
Leasing also includes FIN
When requesting a car lease from the financial entity you also have to provide the FIN with all the conditions. Once again for the comparison of proposals should look at the APR. Or, if you prefer, for the Total Amount Imputed to the Credit (MTIC) – the total amount of your credit. The higher the APR, the higher the MTIC and the more expensive the financing becomes.
If you choose to lease, the car is not yours
In the case of leasing, ownership of the car belongs to the financial institution (rental company), which grants you the temporary use of the car for which you will have to pay a monthly installment defined in the contract. The installment amount depends on the value of the car, the interest rate, the term of the contract and the residual value (i.e. the amount that will remain to be paid at the end of the contract).At the end of the contract you have the option to buy the car or not🇧🇷 If you decide to keep the car, you will have to pay the residual value defined in the contract. O Residual value is generally between 2% and 4% of the vehicle’s value. But if you don’t want to keep the car, you won’t have to make that payment and the car stays with the rental company. costs related to the use of the vehicle, as with car loans, these are all up to you. Although the vehicle belongs to the rental company, as you can use the car as if it were your own, you will have to pay all the inherent costs. Ie, will be responsible for paying the mandatory insurance, the IUC, maintenance and overhauls.Although the car belongs to the rental company, if you want to sell the car you can do it, but you have to pay all the installments until the end of the same good as the residual value. After payment, the car is legally yours and you can sell it.
Long Term Rental (ALD)
O Long Term Rental it is another means of acquiring a vehicle being equated to car leasing. It even has the same rates set by the Bank of Portugal. Also here, the financing entity has to give you the FIN with the proposed conditions.Similar to leasing ownership of the vehicle belongs to the credit institution that grants it free use, upon payment of a monthly rent. It only differs from leasing in the obligation to keep the car at the end of the contract. In other words, in ALD you don’t even have to buy it. Also in this modality all costs inherent to its use are yours: mandatory insurance, IUC, maintenance and revisions.
Renting
O renting is not a financing modality and, therefore, is not supervised by the Bank of Portugal.Also known as Vehicle Operational Lease (AOV), this is a rental of the vehicle by the entity that owns it. Ie, the vehicle is not yours.For the use of the car you have to pay a monthly rent🇧🇷 This is defined according to the model and make of the car, the term of the contract (12 to 60 months) the maximum number of kilometers you can drive annually and a set of services included in the contract, namely maintenance, revisions, changing tyres. mandatory car insurance (which in this case will be insurance against own damage) and the IUC will be at the expense of the entity that owns the vehicle.
Pay attention to final costs
So we could say that when opting for renting you would only have to worry about the monthly installment, but, in fact, this may not be the case. you will have to set the maximum number of kilometers what you can do in a year. And as this number has an influence on the value of the installment you pay, you may have the “temptation” to calculate below to lower the amount of the installment. The problem is that if you exceed this value at the end of the contract, you will have to pay an additional amount for those extra kilometers and it can be expensive. On the contrary, if you have done less, the rental company will reimburse you for the amounts you paid in excess.On the other hand, when delivering the car an inspection will be made. And all damages that do not result from the normal wear and tear of the car, such as scratches and minor knocks, must be paid for at that time. Read also: Charging the electric car at home? Yes, it is possible in some situations