Auto loan: what is the real cost?
Blog | Car Credit | Credit
If leasing is the most known and widely used solution to get a vehicle, a loan is sometimes an interesting alternative. However, the cost remains a particularly important issue, and many drivers are worried about the real cost. All in all, which price can be expected? Our analysis.
Compare the comparable
Before having a closer look at the cost of an auto credit, it is important to remind that a loan is not a leasing. Thus, the prices aren’t comparable right away. Indeed:
- The cost of a leasing involves only the “lease” of the vehicle. At the end of the contrat the vehicle isn’t owned.
- The cost of a loan includes the reimbursement as well as the interest. The monthly cost is usually a little higher, but the driver fully owns the vehicle.
Elements of the cost
An auto credit works just like any other consumer loan. A financial institution, generally a bank, lends an amount of money to the borrower, amount which will be used to purchase the vehicle. The monthly payment includes:
- A part corresponding to the repayment of the lended amount.
- A part corresponding to the interest.
It is important to understand that the paid interest is proportional to the duration of the loan. A 6 years loan will cost twice as much as a 3 years loan.
Interest rate and calculation
The real cost of an auto loan therefore depends on the interest rate and repayment duration. A shorter-term loan will be less expensive than an long-term loan. For example, here are some costs for a 20,000 Chf loan.
Monthly bill*Total cost**Monthly bill*Total cost**Monthly bill*Total cost**
| Rate | 12 months | 24 months | 36 months | |||
| Rate | 12 months | 24 months | 36 months | |||
| 5.9% | 1’719 Chf | 628 Chf | 884 Chf | 1’219 Chf | 606 Chf | 1’821 Chf |
| 6.9% | 1’727 Chf | 732 Chf | 893 Chf | 1’424 Chf | 616 Chf | 2’130 Chf |
| 7.9% | 1’736 Chf | 836 Chf | 901 Chf | 1’628 Chf | 623 Chf | 2’439 Chf |
| 8.9% | 1’745 Chf | 939 Chf | 910 Chf | 1’831 Chf | 632 Chf | 2’747 Chf |
| 9.9% | 1’745 Chf | 1041 Chf | 918 Chf | 2’034 Chf | 640 Chf | 3’056 Chf |
*: includes both reimbursement and interest
**: total interest for the loan
When choosing an auto credit?
The choice of a credit or a leasing depends mainly of each one’s preferences and budget capacity. Indeed:
- Over a short period a loan is usually more advantageous than a leasing. Also, loan interest can be deduced from tax declaration.
- Over a longer period, loan interest can quickly become expensive.
- A loan allows to become the rightful owner of the behicle, at the cost of a higher monthly bill.
Get the best rate
Regarding loans, the interest rate mainly depends on the situation of the borrower. Indeed, a low-risk situation involves a low interest rate. On the contrary, a customer with a risky situation will have to pay more interest. In any case, it is a good idea to go through an intermediary. Indeed, the latter can help it’s customers and try to get lower rates with the banks. For auto loan, Autocredit offers a specialized service, and the possibility to get a free tailored offer with the best rate.
