A car loan with a final installment is also called balloon financing. This type of loan is very popular because every conceivable purchase price can be included and protects the budget. Anyone who decides on a car loan with a final installment should be well informed in advance and make comparisons. This loan is often offered by car dealerships, so that the loan can be applied for when buying a car.
How does the loan work?
A car loan with a final installment always works the same way. At best, a partial amount is initially paid. Then monthly installments are repaid and at the end of the term there is the final installment. The closing rate is usually as high as the residual value of the vehicle. Depending on the model, the closing rate can vary.
Before concluding the contract, you should consider whether you can really afford this final installment. Basically, the borrower has to put some money aside every month so that they can pay off the final installment. He won’t really save.
What needs to be considered?
With a car loan with a final installment, it must always be borne in mind that the monthly installments are very low. This means that the loan cannot be repaid quickly, so that the debt remains for a long time. As a result, interest rates are not very low and the loan can become very expensive.
The final installment must always be paid at the end of the term, otherwise the vehicle remains in the dealership’s possession and a new loan may have to be applied for. These loans should definitely be compared, because since the interest rates are already very high, only offers with low interest rates should be chosen.
Advantages and disadvantages
The advantage is the low monthly installments that have to be paid. In this way, the loan does not burden the household budget too much and the borrower knows exactly what monthly costs he has to bear. Another advantage of a car loan with a final installment is that the down payment is very low.
Some car dealers even agree that no down payment has to be made. Disadvantages are that the loan runs for a long time. In time, the vehicle loses considerable value, especially in the first two years.
If you then decide to sell the vehicle, you have to expect a high loss. Anyone who finances a used car in this way is well advised with this loan. However, this financing is rarely worthwhile for new cars. Only if the vehicle is to remain in the borrower’s possession should the loan be selected with the final installment.