The car loan offered by banks and lending institutions is a very common type of credit among many others. In the financial sector, there are two types of credit: the so-called “non-affected” and the so-called “allocated credits”.
Auto loan is part of this second category. But what does that mean exactly? And why do we call auto credit an assigned credit?
What are the terms of a credit allocated to other credits?
First of all, you must know that the credit allocated is primarily a consumer loan. That is to say that it serves exclusively for the purchase of a good, but also a service, well defined. For example: car, motorcycle, trip, kitchen, etc. Therefore, in order to claim this type of credit, the Borrower must have a specific purchase plan. The peculiarity of this loan is that the good, or the service, purchased appears clearly in the credit file.
Another specificity of the credit affected is that the loan and the sale are intimately linked : it is a unique financial and commercial operation. The contract of sale, or service, as well as the loan agreement are one and the same operation carried out by the bank in collaboration with the merchant or the service provider.
Another modality of the credit affected: it is only after the delivery of the goods or the putting into service that the monthly installments of the loan begin to be refunded by the customer. This means that if there is a problem with the product, if the sale is not made for x reasons, the contract is canceled automatically. On the other hand, if the credit is not granted, the sale is canceled.
To apply for an assigned credit, several documents are required:
- the identities of the three parties: the lender, the seller, and the buyer,
- the exact selling price of the good or service (invoice, order number, etc.)
- the credit agreement detailing the financing conditions (duration, amount of monthly payments),
- the total cost of the credit (specifying the APR, the amount of the fees, etc.)
- the down payment if there is (preferable to book the property).
Therefore, the buyer will have two documents to sign obligatorily: the credit agreement and the sales contract.
A withdrawal period of 14 calendar days is mandatory for this type of credit, during which time the Borrower has the right to change his mind about his purchase.
How is auto credit a credit affected?
If we look carefully at the terms of a credit affected, we realize that the auto loan fills them all:
This is a consumer loan that concerns the purchase of a specific property (car). On the other hand, the bank or credit organization that offers the car loan offers an inseparable contract of the contract of sale of the vehicle: financing organizations and car dealerships work together.
When the loan agreement and the sales contract are established, the buyer will only repay his monthly payments once he has the vehicle in his hand. That is why he has to wait sometimes several days before being able to enjoy his car, be it new or used, withdrawal period requires.
That being said, in certain specific cases, this 14-day cooling-off period can be shortened if all three parties agree. But it should be noted that in this case of immediate delivery of the vehicle, the Borrower loses the ability to cancel without charge.
On the other hand, as long as the 14 days of retraction are not over, the big advantage of this type of contract for the purchase of a car is that if it has a problem (construction fault, delivery problem, problem mechanical, or other…), the contract is immediately canceled, at no cost to the Borrower. No monthly payment will be required, nor any administrative fees. This non-negligible guarantee undeniably offers some peace of mind to the customer.
As can be seen, the car loan is a credit allocated since it concerns the purchase of a specific property. This leads to advantages and disadvantages, and it is the Borrower alone who will know whether he makes that choice or not.
However, other credits, called “unaffected”, exist to buy a car. In any case, keep in mind that a credit is a real commitment and that, whatever happens, it must be repaid in full.