A car loan is used to finance a new car or a used motor vehicle and is granted on more favorable terms than an unspecified consumer loan. The main reason for the reduction in the effective annual interest rate is that the vehicle buyer uses the financed vehicle as collateral.
The security assignment is usually confirmed by the delivery of the Part II registration certificate, but it already comes into force through a corresponding agreement in the loan agreement. A down payment is also referred to as a special loan payment or special financing payment, while the term residual rate is also common for the final installment.
Differentiation between the residual rate and the three-way financing
The three-way financing is similar to a loan with a down payment and a final installment, since the vehicle buyer pays a first installment at the beginning of the term and the final installment at the end of the contract term. The peculiarity of the three-way financing is that the vehicle buyer can choose whether to pay the last installment or to return the car. Because of the choice, the last installment must correspond to the expected residual value of the car. This correspondence is not absolutely necessary for a traditional car loan with down payment and final installment, since the customer always retains the contractual arrangement according to the car.
You can take out a car loan with a down payment and a final installment through the dealer as well as through an independent commercial bank. Advantages of borrowing from the dealer are favorable interest rates and the possibility to replace the down payment by selling the previous vehicle as a used car to the dealership. Borrowing from a commercial bank that is independent of the vehicle manufacturer is associated with higher lending rates, but it offers the opportunity to negotiate a noteworthy cash payment discount with the vehicle dealer.
Save for the final installment
When vehicle buyers take out a car loan with a down payment and final installment, they can almost always pay the first installment from existing credit or by returning an old vehicle. If you cannot make the down payment, you opt for a vehicle loan without a special payment at the start of the contract; corresponding offers are made by both auto banks and independent commercial banks. It is important that the borrower has enough money at the end of the contract term to pay the final installment.
It is possible to finance the car loan closing rate to be paid, but there is only a firm commitment to this for three-way financing. The planned procedure for a car loan with a down payment and a final installment is that the borrower saves the corresponding amount of money during the loan term and has it available at the due date. For this purpose, it makes sense to set aside a fixed sum each month in addition to the loan repayment.
Many car dealers grant a car loan with down payment and final installment for some models without interest. The interest-free period refers to the term of the vehicle financing, while the vehicle buyer has to pay interest on the final installment if additional loans are taken out.