General Angela B. Clyne  

Using a Car Loan

Balloon credit: A mixture of installment credit and leasing, in which a large final payment is due after a series of relatively low installment payments, the balloon. Occasionally a down payment has to be made. If you take out a balloon loan, you should build up reserves in good time for the final instalment – or think about follow-up financing. A balloon loan is therefore particularly suitable for those who can finance the final payment from their own resources. If the balloon has to be paid off with another loan (follow-up loan), it can develop into a good business for the bank – and a bad business for you. This is particularly the case if the conditions for the follow-up loan are worse than those for the original balloon loan. However, experts currently assume that interest rates will remain low in the longer term. Important: You have to pay interest on the balloon right from the start. This is usually more expensive than paying off the loan in advance with higher sums. After all, the target rate is often set lower than the actual residual value of the car. So a good deal if you keep the car and pay off the final installment in one fell swoop. The car then belongs to you, but you also assume the seller’s risk.

– Three-way loan: A similar form of financing as the balloon loan, only a down payment is added. So here are three variables to negotiate, which reduces the transparency of this quite popular form of financing. Basically, the costs decrease if the down payment and the final payment are high, the term of the loan is short and the repayment is substantial. But then, of course, the burden increases. At the end of the term the customer has three options again: 1. Either the dealer takes the car back and the deal is done. Prerequisite: The car has not exceeded the agreed mileage, is undamaged and in age-appropriate condition. If this is not the case, further costs may be incurred by the customer. 2 Or the customer takes over the car with payment of the agreed final instalment. 3. finally the customer can stutter the final payment in installments. The bottom line is that three-way financing offers great flexibility, for which the customer usually has to pay. The cost of the loan is usually high because the final instalment must be pre-financed by the loan. Purely from a cost point of view, a pure installment payment is usually cheaper.

Complete online or with your house bank?

Would you rather take out a loan online, or would you rather discuss the loan with a bank employee? This depends on whether it is important for you to have a local contact person who fills in the credit documents for you and receives your proofs. Or is it right for you to fill in forms online and send the insurance documents digitally or by post? Online providers advertise with more favourable conditions, but if you confront a local bank employee with a favourable online offer, the bank may also keep up. So it’s the trial that counts. As a general rule, if personal contact with the lender is not important to you, an online loan is suitable.

One more word on financing that passes the merchant by. The information portals often argue that with financing through the house bank, the car buyer can appear as a cash payer with the dealer and thus haggle more strongly for a discount. That does not pull usually. In fact, dealers are often ready for a discount if you finance the car through him and he gets the opportunity to earn on the loan. If you even take out car insurance with Buy Now Pay Later through the dealer, your chances of receiving a discount will increase further. Basically, the following applies: the credit customer is also welcome, the dealer always earns.

Obtain financing offers

Once you have made a decision about the previous steps, you can request quotes, from banks or online. Online offers provide comparison portals on the Internet. For local credit, ask your local bank or car dealer. Check the offers and also read the small print. Sleep one night and check again the following day. Clarify detailed questions with the lender. If you’re annoyed, you don’t want their credit. Finally: Decide on financing.


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