Car loan with residual rate
When it comes to buying a new car, German consumers have different options. The percentage of those who are able to buy their new car in cash is manageable and limited.
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Well over half of all people use car financing through the car bank or take out a car loan from a bank of their choice to finance the new car.
For some years now, the car banks in particular – which were the pioneers here – have been offering car loans with a final installment, which consumers can now also get from an independent car lender.
The peculiarity of the car loan with a residual rate
Even consumers who have never taken out a loan know how a loan works today. But the layperson does not know about the car loan with the residual rate, which is also known as final installment financing, three-way financing or balloon financing, so that there is still a need for clarification and there is a lot of catching up to do.
The car banks invented the car loan with the final installment together with the manufacturers. Over the years it was found that German customers can hardly be made to make friends with vehicle leasing – at least not in the private customer sector. The final installment financing then created a possibility that made it possible to incorporate the advantages of leasing – namely the favorable rate – into a financing that is obviously the favorite with German consumers when a new car is purchased. The rate of a car loan with a residual rate is similar to that of leasing, because at the end of the term of the loan agreement there is a residual rate that roughly corresponds to the residual value of the vehicle at that time. But unlike in leasing, where the vehicle is usually returned to the dealer, the final installment is paid for by the customer when the final installment is financed.
The advantage of this type of car loan is the low monthly charge. That is exactly what many customers strive for. With the car loan with a final installment, they can afford a car that they would not be able to afford with normal financing because the monthly burden would simply be too great for them. So with the final installment financing, a very specific clientele is always addressed by customers. These are the ones who have to calculate with a sharp pencil what rate they can afford. The conditions of a car loan with a residual rate are always more expensive than a classic car loan, and it never comes as zero percent financing, but it is a popular financing model for customers with lower incomes.
The disadvantages of the financing model
With hardly any other financing, the disadvantages for the consumer are so obvious. Anyone who purchases a car through the final installment financing has not yet acquired any property at the end of the contract. The final installment / residual installment must be paid. Only a few consumers build up sufficient reserves during the credit period, so that the residual value is usually also financed again. Interest is payable twice. The residual rate was already paid interest on the first loan, and when a loan is taken up again, interest and charges are incurred. If it is important to acquire property quickly and with as little cost as possible, the final installment financing is certainly not the suitable financing instrument. However, if the top priority is to keep the rate as low as possible, as can be the case, for example, with a second car or with financing for a trainee, then the final rate financing is certainly an option in which the additional costs then take a back seat.