The loan with a final installment is mainly known from vehicle financing and is also offered for real estate loans. But for whom is this form of credit worthwhile and what should be considered? You then have several options to finance your new car with a loan. Balloon loans are a great way to buy a car because you can keep the monthly rate low by making a higher final payment to the bank. At the end of the loan period, the value of the vehicle should be able to cover the amount of the last installment.
High final payment
The last tranche is the last tranche of a loan. As a rule, the loan is regarded as paid off as soon as it is fully paid up. As a result, the property for which the loan transaction was concluded becomes the complete property of the borrower upon payment of the last installment. Lending with completion rates can usually be combined with or without advance payment.
And since many borrowers can not predict how their financial situation will develop until the end of the contract term, there are also follow-on loans from many banks. This means that the last installment does not have to be paid in one part. Especially with a car loan, a closing rate is common.
Often a so-called final installment financing, also known as balloon financing, is decided upon. In this case, the borrower receives a low monthly installment. If the borrower ultimately pays the agreed final installments, the car passes into his possession. The final amount is much larger than the previous tranches and often represents a significant part of the financing.
Borrowers should therefore save so much over the funding period that they can eventually buy the property.
Last Rate Credit: Follow these 3 pointers
The final installment is usually referred to as three-way financing or balloon financing. The loan itself is always the same. During the term of office a very low monthly rate is paid. Ultimately, a high final price remains. Now you can go three ways (so a three-way financing): Transfer the last installment: If you make the final installment now, you can call your own car.
Most automotive banks will immediately give you follow-up financing in case you can not pay the last installment but still want to use the car. Return the device: If you can not or will not pay the last installment, you can also return the device to the dealer and you are released from your obligation to pay.
The loan with a closing rate on the one hand has advantages, on the other hand, but also enormous disadvantages: The biggest obstacle is the higher cost of loans. Due to the low or no repayment during the contract period, the interest expense remains at the same high level. However, the interest burden on a normal installment loan is steadily decreasing as the loan amount is repaid in parallel.
In this way, you sometimes pay more than double the interest on a three-way financing, even if you have the same interest conditions. With a loan with a final installment, you must always be aware that the big end is yet to come. After all the low monthly installments, a closing rate follows which, depending on the loan amount, can amount to well over 10,000 USD.
Potential savings compared to a loan
In order for you to be able to repay them, you should save something from the beginning. The new car is available for 20,000 USD. You pay USD 3,000 in advance and finance USD 17,000 with a loan with a final installment of 36 months. The loan interest rate is 4 percentage points pa Your monthly interest rate is 57.20 USD.
Instead of getting annoyed about the low monthly rates, you should think about the final price right from the start. If you want to replace your car after a 36-month period, you should start immediately to save the costs of around USD 1,000, -. Only then can you buy your car in three years.
Always remember that the last installment loan is a very costly way of financing. Therefore, it is important to know that this is a very expensive loan. Use it only if you have no other options or if you can take advantage of this type of loan. If you are already thinking about a later return, you should always keep this in mind.
You can only return it without any problems if it is in “contracted condition”. Always be as careful as possible with your car, eg not in the car itself. Secure your car sufficiently so that any damage can be rectified. If you can not return the car in the condition specified in the contract, you are liable for additional costs.
Ask now for your estimate and find out if you have potential savings compared to a loan with a final installment! With the last installment loan, you decide whether to pay off, return or continue your car. Above all, the high credit burden makes this form of the loan less attractive. The funds for the last installment should be continuously saved over the duration.
Consider other options if you do not necessarily need the benefits of the last installment loan. If you want to bring the car back, you should take care of it from the beginning.