When it comes to purchasing a new car, buyers rarely have the purchase price in cash today. As a result, more and more consumers are turning to the numerous financing options offered by credit institutions and car dealers. The car loan with final payment, also called balloon loan, is very popular.
It is an installment loan with a fixed term and a final installment. Through the duration and the amount of this final installment, the car buyer has the opportunity to influence the amount of the fixed monthly installments. The principle is easy to understand.
The longer the car loan runs and the higher the amount of the final payment is agreed, the lower the monthly installments. The advantages are apparent. A car loan with final payment not only offers planning security for the duration of the financing but is also very flexible to use. Especially since at the end of the term, the consumer has the choice to pay the final installment in one sum or to extend the loan agreement.
No car loan with final payment without detailed comparisons
With a loan contract, the consumer often has a long-standing relationship with the financial institution. Therefore, it makes sense, in any case, to compare different offers and variants with each other before concluding a binding contract. The length of the term affects not only the amount of the monthly installment but also the interest rate.
Anyone who repays the loan within a short period of time will be rewarded with a cheaper interest rate, which automatically leads to significantly lower loan costs. Here is an example: With a purchase price of 20,000 USD, a remaining payment of 6,000 USD and a term of 96 months, a monthly rate of 211.98 USD results at an interest rate of 5.99%.
The total cost of the vehicle then amounts to a total of 26,350.44 USD. With a term of 24 months, the banks usually grant an interest rate that is at least 1 percentage point cheaper. This results in the following calculation: purchase price, 20,000 USD, final payment 6,000 USD, term 24 months, interest rate 4.99%, monthly installment 613.44 USD, which leads to total costs of a total of 21,308.06 USD, and thus a considerable cost-saving 5,042.38 USD.
An insider tip for additional liquidity
If a car loan with final payment is used to finance the dream car, the buyer acts as a cash payer towards the dealer. With a little negotiating skill, the purchase amount of the vehicle can be reduced by a corresponding dealer discount. Some car dealers are willing to pay this rebate to the buyer in cash if the bank finances the full purchase.