Many buyers of new cars or high-quality used vehicles rely on financing a large part of the price with a loan because their savings are not sufficient for the total purchase price.
In addition to a tried-and-tested installment loan, with monthly payments for the repayment and interest in the same amount, a cheap car loan with a final installment is also an option for this financing.
This is how a car loan with final installment works
Just like with any other loan that is granted to private individuals, a car loan with a final installment is subject to a detailed check of the customer’s credit rating before it is approved. By evaluating various information provided by the loan applicant on the general economic situation, the bank determines whether the loan will be repaid with a high degree of certainty by the borrower.
In addition, information is obtained from the credit bureau, only if there are no negative entries about the customer at this credit agency, the bank approves the lending. The loan is disbursed to the customer for a specific purpose and may only be used for the intended purchase of the vehicle.
In addition, the bank is usually required to deposit the vehicle registration document in order to secure its claims. While the same monthly amounts for the repayments and interest payments accrue for ordinary car financing as for an installment loan, the repayment for a car loan with a final installment is fundamentally different. Such a loan incurs only interest during the term and either no repayments at all or only a very small amount. Only at the end is a very high final payment due, with which the repayment is then made in one fell swoop.
Advantages and disadvantages of this form of car financing
A cheap car loan with a final installment is often already offered by the customer advisor in the dealership, who works closely with a bank. This financing then serves as a selling point for expensive cars that would otherwise exceed the customer’s economic opportunities.
In fact, it may make sense to choose such a form of credit if a significant improvement in the financial situation is expected in the next few years. For example, this is often the case for young professionals or young families if one of the two partners intends to go back to work in the next few years.
Then the large final rate can probably be achieved without major problems. But if this is not the case, a cheap car loan with a final installment quickly becomes a big problem. Either the customer then has to sell the car and make the difference between the sales proceeds and the repayment due out of his own pocket, or he has to strive for follow-up financing.