A car loan with a final installment is a form of financing specifically tailored to car purchases. It is also known under the terms balloon financing and final financing.
For consumers, the car loan with closing rate for a special reason is very popular: The final installment financing can be lifted even with low monthly installments.
For final installment financing, the consumer can already use the car as soon as the financing contract is signed. From this point in time monthly payments have to be made. An interest rate is set for the amount of the installments. At the end of the agreed term, a final installment will be due. This closing rate will not be redeemed during the term. Instead, it is paid in the form of a one-time payment. Some car loan providers also allow their borrowers a so-called three-way financing.
In the case of three-way financing, borrowers have various options at the end of the term. First, you can pay the final installment here, as described above, with a one-time payment. If the borrower does not want to keep the car at the end of the term, it is possible to return the vehicle to the dealer. This is especially suitable for people who can not afford a high final installment or follow-up financing. Even people who only need a car temporarily benefit from this opportunity. The third option of three-way financing is follow-up financing.
After the interest rate commitment of a loan expires, there is often still a residual debt left over. In order to settle the remaining debt, a new financing with a new fixed interest rate may be agreed at this time. This replaces the old contract.
Consumers should not be fooled by the low interest rates and lose sight of the closing rate. It should therefore be taken into account when comparing with other financing options. However, the higher cost of this type of funding should not be misinterpreted. For low budget borrowers, lower monthly installments are a big advantage. In favor of lower monthly installments, one has to accept the slightly higher overall costs for car loans.
In contrast to a conventional annuity loan car loans are usually more expensive with closing rate. The cost increase results from the deferred payment and the associated interest.
In order to check whether a car loan with closing rate is suitable for its own purposes, consumers should make a credit comparison. In a credit comparison, offers for conventional car loan annuity loans and final installment financing can also be compared.
For the calculation of the final rate, the various credit calculator or car finance calculator on the Internet are suitable. Here, consumers provide information on the desired loan amount, term, loan interest, final installment and what the loan should be used for. Subsequently, prospective customers receive a clear list of current loan offers.
A car loan with closing rate has both advantages and disadvantages. Often consumers like to choose this type of financing, since initially only small installments are payable. In some cases, starting capital is not even necessary. Another advantage of such a loan are the often favorable interest rates. In addition, the payment of the final installment is usually unproblematic. The loss in value of the car is already paid with the previous installments. The amount of the final installment will therefore not change. However, one drawback to closing rate financing is that this type of funding is more expensive overall. In addition, the fact that the relatively high final installment must be financed. Therefore our tip:
The Auto Consumer Bank is Germany’s largest independent automotive bank. The so-called “Car Credit” of Auto Bank offers two options for financing. First, consumers can finance their new dream car with a classic loan. Here, the monthly installments remain the same until the loan is paid off. The future car owner can choose the duration flexibly (between 12 and 96 months). In addition, there is the Budget Credit, which can be equated to the balloon financing. The interest in this case depends on the duration.
You can compare different providers online. So you have the opportunity to calculate the terms of a loan in a car loan calculator with final installment. Then you can weigh the different offers against each other and choose a solution that is best for your individual situation.
Is a balloon financing suitable for you or is an installment loan the better alternative? Calculate your finances to find a suitable financing.
As a result, the value of the car can not drop completely and your connection rate will not be too high.
Especially if you want to return or sell the car at the end of the term, you should take good care of it. The final rate is calculated in advance on the basis of the estimated mileage and an estimated residual value. If the actual residual value deviates too much, you must pay the difference at the end. If, on the other hand, it is in good condition, you can sell it and finance the due final installment of it. With a bit of luck and skill, you might even make a profit.
Balloon financing is particularly suitable for those who can not afford enormously large monthly installments. For customers who depend on a low rate due to the current situation, balloon financing can be a good alternative. Also, for customers who rely on a vehicle (for example, by their job)) and can expect additional revenue in the near future, balloon financing may be attractive. This can be a salary increase, an inheritance, repayments from other areas etc.
Both used and new cars can be financed with such a loan. However, it is more worthwhile for used cars, since in this case the loss of value is lower. In addition to cars, motorcycles, campers or vans can also be financed.
In this case, one way would be to sell the car again. However, it is questionable whether the money is sufficient to fully cover the final installment. Another option would be follow-up financing, another loan. But here too, it should be noted that additional costs may be incurred (for example due to higher interest rates).
It is calculated how high the value of the car will be at the end of the term. This depends on the estimated mileage.
The final rate may only be as high as the estimated residual value of the car.
The difference between closing-rate car finance and leasing is that the vehicle always remains the lessor’s lease asset. By contrast, in the case of the loan with the final installment, the borrower decides at the end whether to keep the vehicle or return it to the dealer.
A loan with a final installment can also be redeemed early. However, this option must be specified in the contract. In addition, one must reckon with the fact that in the case of a special repayment possibly prepayment penalties or a higher interest rate accrue.