Car loan without advance payment and no final installment
The classic installment loan and the final installment financing. On the one hand, there are the variants of the simple car loan. This is a car loan that repays the loan amount on an ongoing basis. The balloon financing, however, is a car loan with a final installment. In this case, a high end rate is calculated, which correspond to the predicted residual vehicle value, so that the regular tariffs are relatively low.
The installment loan has the great benefit of a much lower monthly burden, but requires own funds. If the car drives after the end of the term, the last installment must be paid. Note: If you plan to sell the car to pay the last installment, consider unexpected losses in value and changes in the GW market. For used vehicles, a form of vehicle financing that depends on the expected decline in value is generally more suitable, as a lower loss of value is to be expected in the years following the acquisition than in the case of a new vehicle.
Balloon financing is especially interesting for car loans. For a long time, this financial model was only offered by the automobile banks themselves; today, more and more banks are offering balloon financing in their product range. Balloon financing is similar in construction to the leasing business, but the legal aspects of ownership are quite different.
When renting the car is only rented without the tenant can have any form of ownership. But what does funding actually mean with the balloon? The balloon financing is geared to the respective vehicle residual value at a certain time. You buy an automobile for 40,000 USD.
The interest rate at the end of March 2017 is around 710 $. Now you can ask yourself: “And what about the 10,000 USD of the purchase price?” This is the last installment you owe the seller. This is where the parallel to rental comes into play.
With USD 30,000 you have co-financed your car with a purchase price of USD 40,000 over five years. The last monthly installments are paid. Now you have three options in terms of the final price: You want to keep the vehicle, have a liquid funds of 10,000 USD and pay the final installment in a single payment.
If you want to hold the vehicle but do not have the necessary fluid. The follow-up financing of USD 10,000 will be effective in this case and will be completely renegotiated. You do not want the money anymore. The latter, however, is associated with the risks of leasing. Actually, the value of the vehicle must amount to 10,000 USD.
Often, the balance is below the last installment ($ 10,000). Nonetheless, balloon financing offers clear competitive advantages over leases. You are the owner of the vehicle and can use it at will. If you want to know how expensive a balloon financing with a final installment is, you can use our free financing calculator: