Lending a car: what you need to know

adminonMarch 13, 2023April 6, 2023Leave a Comment

Probably everyone has lent their car to someone else at some time or another. But who thinks about the fact that this may well entail legal consequences? It starts with insurance coverage and possibly ends with legal consequences. So what should you look out for if you want to lend your car out?

The most important facts in a nutshell

Who lends its car, should make on the one hand a handing over minutes and a loan contract, on the other hand inform the insurer.
In principle, the vehicle owner is initially liable in the event of accidents, traffic violations or if the car is unroadworthy, even if he is not responsible for them.
If you lend out your car but only specify yourself as the driver in the insurance contract, you risk premium increases and penalties.
If the hirer causes an accident with the vehicle, the vehicle's insurance will apply, not the hirer's insurance.

What is the difference between renting and leasing a car??

If you rent out your car, you make it available to another person free of charge. With a rental, on the other hand, the borrower pays a fee. Private car rental is possible, for example, via car-sharing portals where private individuals offer their vehicles for rent.

While contracts and general terms and conditions are already specified by the portal operator in the case of car sharing, it may make sense to draw up a rental contract when lending out your own car. In any case, before the vehicle is handed over, a protocol should be made regarding the condition of the vehicle. This will ensure that there are no disagreements about possible damages.

Pay attention to the group of persons in the insurance contract

The insurers ask in the insurance application, who uses the vehicle. Does this apply only to the policyholder, to spouses or to an unspecified group of persons? Depending on the number of users, the accident risk statistically increases and so does the premium. If you rent out your car, you should inform the insurer in any case. If, contrary to the contract, a third party causes an accident, there may be a reduction in benefits or penalty premiums. The penalty payment may well amount to a year's premium.

The situation is somewhat different if the vehicle owner leaves the vehicle to a third party due to an emergency or driving incapacity. If, after three glasses of wine, you ask your friend to drive you home instead of driving yourself, you are not acting in breach of contract but in accordance with the law.

What to look out for in advance when renting a car?

The car owner is responsible for the road safety of the car. If you rent out your car, you have to make sure that the car is roadworthy according to the road traffic regulations. The owner must make sure that the borrower is in possession of a valid driver's license. For the duration of the loan, he must hand over the vehicle registration document (registration certificate part I) to the borrower so that it can be presented at any time during a traffic control. Driving without a vehicle registration certificate costs a ten euro fine. If you rent out your car, you can reclaim the vehicle at any time.

What about liability for traffic violations??

In principle, the vehicle owner is initially liable if he cannot prove that a third party was on the road with his car. Assuming neighbor gets speeding ticket with borrowed car, proof of who was driving is easy based on photo. The neighbor has to pay the ticket, the car owner has nothing to worry about.

The situation is different if the car was parked in a no-parking zone and a police officer issues a parking ticket. The vehicle owner cannot prove that he has not parked the car in violation of traffic regulations, and therefore receives the ticket.

Liability in the event of an accident

Accidents are critical. First of all, of course, the motor liability of the borrowed vehicle takes effect if the borrower causes an accident and damages a third party. Damage to the vehicle, if any, is covered by comprehensive insurance. However, the vehicle owner can take recourse against the hirer for the damage if the latter is at fault or partially at fault for the accident. On the one hand, this applies if there is no comprehensive insurance, on the other hand, for the higher premium in the liability and comprehensive insurance after the upgrade. Partial cover does not apply in the event of an accident.

Both motor vehicle liability insurance and comprehensive insurance are vehicle-related policies, not person-related policies. You settle damages caused by the insured vehicle, regardless of who was driving. The liability insurance of the borrower does not cover the damage caused by him with the borrowed vehicle. This applies to both motor vehicle liability and personal liability insurance. However, some private liability insurances now offer the inclusion of cost coverage if an accident was caused by the policyholder and the vehicle owner is upgraded.

Lending a car: How to stay on the safe side

If you want to be nice and lend out your car, you will be even more annoyed afterwards if there is damage and the lender does not want to know about a cost transfer. This potential nuisance can only be avoided if you conservatively set up a loan contract. This includes:

The condition of the car with any previous damage
Who pays for which costs
Who is liable in case of doubt
From when to when the vehicle is lent
Who pays the possible deductible in the event of an accident

To avoid possible penalty premiums, it is essential to inform the insurer. In case of doubt, it makes sense to extend the circle of drivers in the insurance contract.

Events are unfolding at a rapid pace these days: hundreds of thousands of people have stopped paying the installments for apartments they once wanted to move into. In China, it is not uncommon to pay off a property while it is still being built. But due to the high indebtedness of several developers who financed their projects with cheap loans, it is currently questionable whether these apartments will ever be built. One of the largest developers of this kind, Evergrande, has been in crisis since last fall and is now insolvent.

In Henan province, hundreds of thousands of savers have been cheated out of their deposits: Four banks lured people from all over the People's Republic with high interest rates. In reality, the money was invested riskily. Now deposits worth the equivalent of six billion U.S. dollars have been lost – nothing has been paid out since April. For two weeks, savers have been demonstrating in front of bank buildings in Henan. Police cracked down violently because public protest is banned in China. It didn't help that protesters carried Chinese flags to show their patriotic sentiments. Because at the same time they chanted that the local government was responsible for the fraud.

People have traveled from far-flung parts of the country to demonstrate in front of the People's Bank in Zhengzhou

Has Beijing overstretched itself?

Now there is further bad news: More and more loans that Beijing has granted as part of its New Silk Road initiative can no longer be serviced. Since 2013, China has invested around $840 billion to build roads, ports, dams and power plants around the world. With this "project of the century," as China's ruler Xi Jinping has called it, Beijing is pursuing primarily political goals, not economic ones. Many loans were therefore also granted according to political criteria. A more than courageous program in view of the risks taken. The question now is whether Beijing has not made a mistake with this global initiative.

The Financial Times reports that more and more countries are asking Beijing to defer their loans because they can't pay them anymore. In Asia, Africa and Latin America, economies are set back years by the COVID malaise. This is probably another reason why loans worth around 52 billion will have to be renegotiated in 2020 and 2021, whereas in 2019 the figure is expected to be much lower at 16 billion US dollars. In total, according to a study by the New York-based research institute Rhodium, 118 billion, or 16 percent of the total volume of all loans, is currently on the line.

In order to plug the credit holes of its debtors, the People's Republic often grants new aid loans, thereby increasing its own problem. Rising interest rates around the world make it more likely that more and more debtors in the world's poorer south will become insolvent. At the latest, the effects will also be felt in the northern hemisphere. What the triple crisis of banking, real estate, and credit will end up doing to China itself is best not imagined. It will shake the foundations of social cohesion and the CP's dominance.

Home-made crises

The credit crisis may be caused by foreign and security policy, but the other two are homemade: Until recently, China's real estate and banking sectors were not regulated at all or were poorly regulated, which led to the credit excesses and manipulations. The leadership in Beijing has tried to consolidate the real estate sector with stricter rules over the past year, but this has been done with the intention of expanding the supremacy of the party, which has a stake in the companies, rather than protecting the people.

DW columnist Alexander Gorlach

But now that the two crises have merged, State President and Party leader Xi Jinping has no choice but to also reach out to people cheated out of their savings. The 400.000 savers who were defrauded in Henan are to receive a payment equivalent to 7.400 US dollars received. But these three billion US dollars will not be enough to appease those who have been cheated.

For Xi Jinping and his nomenklatura, the protests that are currently breaking out all over the country are a novelty. What's new is that the people don't care about the disadvantages they face as a result of their protests. Respect for the government is gone since it came out that the provincial government in Henan used the Corona warning app to stop people from protesting.

Corruption and mismanagement continue to flourish

Xi Jinping took office in 2013 with the promise to fight rampant corruption. Even then, he was accused of using his anti-corruption campaign only to throw political opponents in jail. Ten years later, corruption and mismanagement are still thriving. Xi's record looks like this at the moment: The People's Republic is still groaning under the government's zero-COVID strategy: supply chains are disrupted, entire industrial zones closed. Economic data have plummeted, and youth unemployment is at 18.4 percent, the highest it has been in a long time.

The housing market in China was seen as a natural investment market for the middle class. Prices continue to rise because of them. Developers could finance themselves so cheaply and build more and more houses on credit. These are now losing value by the minute. But where assets are destroyed, unemployment and impoverishment threaten, the revolt is not far away.

For now, Xi seems determined to solve all problems with money. In view of the gigantic financial volume that could swallow up three times China's crisis, however, it cannot be ruled out that violence will be used against the country's own people. In any case, the middle class, whose social security is in danger, could start protests that the country has not seen since 1989.

Alexander Gorlach is a Senior Fellow at the Carnegie Council for Ethics in International Affairs and a Research Associate at the Internet Institute at Oxford University. After spending time in Taiwan and Hong Kong, this region of the world, especially the rise of China and what it means for the free world, became his core theme. He held various positions at Harvard University and the University of Cambridge.

Quantitative easing is designed to stimulate the economy through central bank asset purchases.

Quantitative easing (QE) is a nontraditional monetary policy in which a central bank buys a large number of securities to stimulate the economy.
When QE works well, increasing the money supply encourages lending, lowers interest rates and leads to economic growth.
Critics believe prolonged quantitative easing without growth can cause dramatic inflation, a condition known as stagflation.
Visit Insider's Investing Reference Library for more stories.

Quantitative Easing (QE) is a type of unconventional monetary policy in which a country's central bank, such as the Federal Reserve, attempts to stimulate the economy by purchasing a large number of long-term securities on the open market to increase the money supply and encourage lending and investment.

"Before the financial crisis, the Fed implemented monetary policy through small daily open market operations to ensure that the federal funds rate traded near its target level," says William English, a professor at the Yale School of Management and former head of the Fed's finance department. "These operations have been small and often temporary. QE is different, affects longer-term yields, and the size of QE operations is much larger."

Assets purchased by the central bank mainly include long-term government bonds and mortgage-backed securities (MBS) issued by Ginnie Mae, Fannie Mae, or Freddie Mac.

How does quantitative easing work?

Using QE to add new money to the economy sets off a powerful chain of events:

The Fed creates credit. The central bank adds credit (money) to the banking system by building bank reserves on its balance sheet. This is sometimes referred to as "money printing" by the Fed.
The Fed buys assets. These assets are in the form of long-term government bonds and other financial assets on the open market.
Demand increases. As the Fed demands more and more of these securities, bond prices rise and the yield (the return on the securities) falls.
New money (credit) enters the economy. The Fed's purchases bring new cash (in the form of loans) into the accounts of financial institutions, which sell the long-term securities to the government.
Interest rates fall. This causes lending rates to fall as financial institutions are motivated to lend the extra money they have.
The economy grows. Businesses and individuals borrow more, invest more, and stock prices rise (since bonds are now a bad investment). The result is a revival of the economy and a reduction in unemployment.
Quick hint: QE is seen as a possible response to a . Viewed Keynesian liquidity trap, named after English economist John Maynard Keynes. A liquidity trap occurs when low interest rates and excess cash fail to stimulate the economy.

Who applied quantitative easing?

Quantitative easing is not only practiced in the U.S. A form of QE was first used between April and July 1932 when the Fed, under pressure from Congress, successfully conducted large-scale open market operations during the Great Depression.

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Quick tip: Although a form of QE was used in the U.S. during the Great Depression, the actual term was first used in Japan in 2001.

Since 2009, the Fed has initiated QE three times in response to the COVID-19 pandemic, in 2010, 2012, and in March 2020. The results of all these efforts give a mixed picture of the effectiveness of quantitative easing.

Is quantitative easing good or bad?

The question remains: Is QE good or bad?? Does it work as advertised? That is, QE flattens the yield curve, increases spending, and promotes economic growth? Empirical evidence is sparse, as quantitative easing has only been used in a few economies. In addition, each of QE's strengths seems to have an Achilles heel.

QE leads to lower interest rates. While this is good for borrowers and investors, it negatively impacts savers and non-investors or those without assets. QE eventually boosts the stock market, but unchecked can lead to runaway inflation. And while it is a reasonably useful tool for GDP growth, QE can also reduce the value of currencies that cause trade problems.

Advantages

Disadvantages

Encourages borrowing/spending
Increases stock prices
Increases economic growth

Hurts savers and non-investors
Causes inflation and stagflation
Lowers the value of the dollar

How quantitative easing affects financial markets?

The impact of quantitative easing on financial markets should be somewhat predictable.

As English puts it, "All other things being equal, QE would be expected to lower longer-term interest rates, boost stock prices and lower the foreign exchange value of the dollar." He notes that these are the same effects, albeit on a larger scale, as traditional Fed funds policy, and says that reducing QE should have the opposite effect – long-term interest rates should rise and stock prices fall.

Anomalies occur, such as the so-called taper tantrum of 2013, when bond prices rose quickly and stocks fell in anticipation of the Fed reducing its quantitative easing policy.

"Markets panicked and interest rates rose in response," says Nicole Tanenbaum, chief investment strategist at Checkers Financial Management. "Investors feared the economy would collapse without the Fed's continued support."

However, when investors realized that the Fed had only announced tapering and ultimately increased its purchases, the market stabilized and avoided a downturn. As with anything to do with the market, perception can easily become reality. This is certainly no less true of QE.

The financial takeaway

Quantitative easing attempts to counter an ailing economy with an infusion of cash. Its design follows the "less is more" model, meaning it should not be extended. The taper tantrum of 2013 shows how investors can become addicted and subject to panic attacks when only the threat of tapering occurs.

Understand the pros and cons of QE and, most importantly, that it is not intended to be permanent. Also know that the jury is still out on QE as an economic remedy. Implemented with care and control, it shows promise but not perfection. Finally, remember that the best economic outcome of quantitative easing is when it is no longer needed.

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