You are at a used car seller and have discovered your dream car or the family has grown and now you need a larger vehicle quickly. You have long since opted for the right used car, but how do you finance it? In some cases, the used car loan with final installment is the right choice for you.
Advantages of used car loan with final installment
The big advantage with used car loan with final installment is that the monthly installment for the loan can be kept relatively low. In the end, such a financing model is more like leasing with the option of buying the car at the end of the term. For example, a vehicle can be financed for USD 20,000 at a monthly rate of USD 200 or less. At the end of the loan term, there are then several options to choose from: First, the final installment can be paid in full, and second, the remaining amount can be refinanced.
However, it must be noted that a new contract is drawn up and the interest is recalculated. Some providers also offer the option of returning the used car at a loss in value. The loan at the final installment is mainly offered by car banks and occasionally by independent credit companies.
All disadvantages at a glance
What are the major disadvantages of a used car loan with a closing rate? Firstly, the generally worse conditions. The interest that arises is much higher in comparison to other car loans and on the other hand the issue of depreciation can lead to a problem. If the term of the loan is chosen to be long and the financing rate is small, the actual market value of the vehicle will be below the final rate to be paid after a few years.
The following rule of thumb therefore includes one of the most important points to consider when financing a car: The residual value of the car must never be less than the remaining amount of the financing. The loan term should not exceed 36 months and the rate must be correspondingly high.
Meaningful or not?
Anyone who chooses a used car in the right price range will find a very sensible financing model in the used car loan at the final installment. It is important to choose not too long a term and to resist the temptation to finance an expensive vehicle at a low rate. If these rules are followed, the loan is a good alternative to leasing. The classic loan without final financing, however, offers the better terms and is the better choice if possible.