Auto loans with a final installment
It is known in the market economy as balloon financing and offer the borrower many advantages, but also one or the other disadvantage. Financing with a final installment works a little differently than a classic installment loan, since the monthly installments are chosen very low, while the final installment is relatively high.
The financing model is also commonly regarded as a form of leasing, since the borrower can also sell the car again instead of paying the final installment in order to achieve the equivalent of the final installment. When comparing car loans with the final installment, borrowers should therefore pay attention to a low interest rate, since the interest rate is counted against the entire amount of the loan despite the final installment. The term is also crucial if you plan to finance the final installment in advance by selling the car.
Then the car can only be used for the duration of the loan before it is sold to pay the high final rate. By comparing car loans with the final installment, borrowers can therefore also afford cars that are actually priced outside their own budget. However, there are disadvantages to balloon financing for a new automobile.
Can the final installment be counter-financed?
Because when taking out a loan after comparing the car loans with the final installment, the current financial equivalent of the automobile counts. A loss in value, for example due to a new model or signs of wear, can at best be calculated but never seen exactly beforehand. As a result, it is not necessarily guaranteed that the value of the car at the time of the final installment is also sufficient to settle it in full. In addition, the borrower does not receive any physical equivalent in spite of his previously paid small installments, because the car is of course gone after the sale and payment of the final installment.
This effectively paid a “rental fee” for the car rather than receiving it permanently after the loan was paid. However, the final installment does not necessarily have to be paid through the sale of the car. When comparing the car loans with the final installment, the final installment can also be simply paid out of your own capital, for example if a long-term investment ran out during the term of the loan and the borrower thus has liquid funds at his disposal.
Be sure to compare beforehand
Regardless of whether the final installment is counter-financed through the sale or the car is kept permanently, a comparison of the car loans with the final installment helps to keep the costs of buying a car or leasing as low as possible. This is particularly important in the long term, since a significant advantage of balloon financing is the low monthly installments during the term, which of course the lower the lower the interest rate. This also increases the chances of being able to fully settle the final installment through car sales.