This is how a loan with a final installment works!
- Favorable installments: A loan with a final installment has the advantage that the monthly installments are usually set at a lower price than a conventional installment loan.
- Car purchase: The final installment loan is mostly used for car loans. There is also the interesting possibility of so-called 3-way financing.
- Credit comparison: Even if the loan with the final installment is quite interesting and tempting, a credit comparison should also be used to check other options.
The loan with the final installment is often used for a car loan. In concrete terms, this means for you that you pay monthly installments to the bank over an agreed loan term and at the end of the term a larger final installment that repays the loan. In the case of a car loan, the vehicle would then become your property and the bank would hand over the vehicle registration document to you.
Often, however, you do not have the final installment due and would like to continue financing the loan. Then there is so-called follow-up financing. You should notify the bank in advance of your desire for follow-up financing so that it can make you an offer for further financing.
Follow-up financing does not necessarily have to take place at the same bank. For example, you can also take care of a loan with another bank early, so that the loan payment is on your account in time, and then pay the final installment due at the other bank. In order to determine your best possible advantage, you should always carry out a credit comparison and thereby obtain several offers.
Since loans with closing rates are often used when buying a car, you usually get a buyback offer from the car dealer. At the end of the term, the dealer would then virtually repurchase the vehicle in the amount of the final installment due and repay the installment for you at the bank. This is particularly worthwhile if you are financially unable to pay off the final installment. Such offers are often only offered in combination with a down payment
Advantages and disadvantages of a loan with a final installment
A loan with a final installment has its advantages and disadvantages. What most consumers find very interesting with such a loan are the usually lower monthly installments, since the main part is only repaid at the end and this can even be interest-free depending on the offer. Such an offer can be particularly interesting for beginners who expect a salary improvement or otherwise expect money in the future.
The disadvantage, however, is that you postpone payment of the main debt and that it is due at some point. Until then, you should have the money. It is therefore generally recommended that you set aside additional reserves for repayment. Alternatively, you would otherwise have to return the vehicle to the dealer or sell it privately to repay the due rate. However, if you do not have a guaranteed buy-back offer from the dealer, there may also be a negative difference between the vehicle value and the due final rate, which you would then have to compensate.
Car loan with final installment as 3-way financing
That the final installment loan is often offered by car banks through the dealer, you as a consumer can choose from 3 options at the end of the term.
- You pay the final installment in cash
- You conclude follow-up financing
- You return the vehicle to the dealer
However, this model only works if it is concluded directly through a car dealer with the respective contracting bank. For example, the Ford bank at a Ford dealer or the VW bank at a VW dealer and so on. This type of financing comes very close to leasing because you know exactly how much you are paying per month and you have the security of returning the vehicle to the dealer at the residual value in order to pay the final installment. But be careful: In the case of new vehicles with a high value, this model is usually only offered in combination with a down payment, otherwise the vehicle will lose its value more quickly than is repaid via the loan. This is the only way for the dealer to make a current value take-back offer.
High repayment mostly never wrong
A loan with a final installment can be very tempting due to the cheaper rates around the leasing-like model. Basically, however, it is always advisable to repay as much and as quickly as possible and not to blame for long. Therefore, also use a loan comparison to check the possible alternatives of other loan models.
Final installment loan or the classic?
You are now probably faced with the decision of whether a loan with a final installment or rather the classic installment loan is suitable for you. Unfortunately, no clear recommendation can be made for this. Both forms of financing have their advantages and disadvantages. Your personal situation is ultimately decisive.
If cheaper rates are important to you at the moment, for example because you are in training and will be taken on next year and then earn significantly more, a shot rate loan can be quite interesting.
If, on the other hand, you are already financially well positioned, it is fundamentally never a disadvantage to repay as much and as quickly as possible, borrowing money costs money and the longer the repayment takes, the more the borrowed money costs. With a classic installment loan, a quick and more flexible repayment option is usually more possible.