Car loan comparison with residual rate
January 27, 2020
Modern cars are becoming safer, more comfortable and more economical. However, technological progress comes at a price. The value of new cars has been increasing continuously for years. It is therefore not surprising that today the majority of vehicles are bought with the help of financing. There are several models of car loans on the market. When comparing a car loan with Restrate, you can find the right provider for you online.
What is a car loan with a residual rate?
When comparing car loans with a residual rate, one often comes across the term balloon financing. This designation illustrates how this financing is structured. The somewhat strange-looking name is derived from the fact that the structure is reminiscent of the shape of a balloon. The buyer initially pays small monthly installments, which are used to compensate for the use of the vehicle during the term of the financing. A large remaining amount is due at the end of the term.
This remaining amount is usually calculated so that it corresponds to the current value of the vehicle. There are two ways to pay it: either sell the car and cover the remainder with the proceeds, or organize follow-up financing. This is recommended if you want to keep the car. The remaining amount is usually financed using a private installment loan.
What are the advantages and disadvantages?
When comparing a car loan with a residual rate, the advantage of the low monthly charge is immediately apparent. In many cases, the car dealer doesn’t even require a down payment. This makes this type of financing particularly suitable for consumers with low monthly incomes or those with irregular incomes. This group of people includes, for example, the self-employed and freelancers. In contrast to leasing, the vehicle becomes your property at the end of the contract period, provided you pay the residual rate.
Like any type of financing, balloon financing also has disadvantages. These are due to the relatively large amount of the final payment. If the car loses value more than expected during the term of the financing, its sale may not cover the cost of the final payment. The remaining amount must then be paid by you. This can happen if either the car loses value more than expected during its service life, for example if the car is damaged by an accident or if the car has traveled more kilometers than expected and the wear and tear increases.
When comparing a car loan with a residual rate, it is worthwhile if you carefully examine the individual offers. The competition between providers is tough. You can take advantage of this and negotiate particularly favorable terms. The Internet offers very good comparisons. There you can see most of the offers at a glance.