Car loan – there are 5 different types of financing.

8 Mar

The car loan

This is the best way to finance a car.

This is the best way to finance a car.

The purchase of a new car, only a few people can afford out of pocket. Accordingly, the opportunity is often used to finance the car through monthly installments. In order to enable virtually every customer to buy a new or used car, car manufacturers, banks and financial service providers offer a whole range of different financing models.

These range from full financing without down payment to installment loans and car loans without Private credit. Which financing is the right one depends entirely on the financial wishes and possibilities of the customer. We have compiled the most important information about car financing for you.

New car financing

For the financing of a new car speaks the fact that a high amount of funding is also a corresponding value. Anyone planning to finance a new car is in the fortunate position of being able to choose the type of financing for themselves. In addition to the offers of car dealerships, which allow a comfortable financing of their cars in cooperation with their partner banks, one can also catch up on offers from other banks and banks such as the house bank.

For you as a car buyer, the free choice means that you can decide without restrictions on the right offer. With the offers, however, there are often big differences. Although the banks usually offer very favorable terms, but are often very inflexible in the financing period. If you want to finance only very short or very long, so should ask at his house bank for a car loan or use the possibility of a free online comparison.

Used car financing

The high sum of money needed to buy a new car and lack liquidity is deterring many car customers. They prefer to choose a used car, which is often much cheaper. However, this does not mean that used cars must always be paid directly in one sum, because here too there are various ways of financing.

No matter which variant you choose, especially for used cars – if possible – no too long running time should be chosen. Experts advise you to choose the repayment term as long as you plan to drive the car. If the used car is merely a kind of transfer car that is to be exchanged for another vehicle within one to two years at the latest, the duration should also be adjusted accordingly.

Financing with final installment

For most financing models in the car sector, a final installment is agreed. By paying this final installment, after the down payment at the beginning of the financing and the monthly installment payment during the term of the loan, the car finally passes into the possession of the borrower.

The amount of the final installment depends on several factors: the loan amount, the amount of the monthly installments, the duration and the calculated residual value of the car at the end of the term. By varying these factors, the closing rate may be higher or lower. Some financing models make use of this, in order to forego a down payment by means of a high final installment or to keep the monthly financial burden of the loan installments as low as possible. These include balloon financing, a model similar to the very popular three-way financing.

Three-way financing

For German car buyers, the so-called three-way financing is one of the most heavily used types of financing. It is only offered for new cars and is aimed primarily at private customers. At the end of the funding period, it gives the buyer three options on how to proceed with the vehicle.

At the beginning of the three-way financing, the car buyer makes a down payment for the new car. Thereafter, fixed monthly installments will be paid for the duration of the funding. Even before the conclusion of the contract, the residual value of the car is calculated at the end of the term. Once this is achieved, the customer has the choice: either he returns the car to the dealer and pays a final rate, the amount of which depends on the condition of the vehicle. Or he finally transfers the car into his possession by paying the residual value. Third, there is the possibility to refinance the remaining amount.

balloon financing

Balloon financing is similar to three-way financing. At the beginning of the financing, however, usually only a very small or no down payment is made and also the rates are often very low. As a rule, a very high final payment is due, which corresponds to the calculated residual value of the vehicle. Here, car buyers have the choice whether they pay the remaining amount in one sum and so immediately become the owner of the car or whether they finance the remaining amount again.

The latter has the disadvantage that the conditions are often significantly worse than at the beginning of the financing. Customers who have opted for balloon financing, however, also have the option to sell the car at the end of the term and thus pay off the remaining amount. Here, however, it depends on the condition of the car. If more kilometers were driven than previously calculated and there are visual or technical defects, the sales proceeds can be well below the calculated residual value. In such a case, customers have to pay the possible difference from their own pocket when selling the car.

target financing

target financing

Target financing has created an auto financing option that promises very low rates compared to other forms of financing. It is suitable for people who currently have little financial leeway, but who expect their financial situation to improve soon. With the monthly installments, only the loss in value of the car and a fixed interest rate are repaid to the lender.

This is at the end of the term, a correspondingly high final rate. How high this is, the borrower can influence, among other things by the amount of his down payment. The target value (the final rate) is thus flexible. It can either be paid in one fell swoop or it can be repaid to the lender via follow-up financing. It is advisable to keep an eye on the final installment during the term of the car finance and to save all or part of it in parallel with the installment payment.

Full financing / car loan without down payment

Full financing / car loan without down payment

Some providers also offer a car loan without a down payment (“full financing”). This variant is particularly interesting for customers who currently have no large sum of money available with which they could afford a down payment. However, a down payment has a direct influence on the amount of the monthly installment, which – for the same term – is lower the higher the down payment is. Conversely, this means that customers without a down payment need to expect significantly higher loan rates.

Often the interest rates on these tenders are one to two percent higher than on down payment financing, so experts advise you to always make a down payment if possible. Some vehicle dealers offer the trade-in of the old vehicle instead of a down payment. However, this is usually worthwhile only for newer cars with a high resale value. Dealers calculate the costs they have to pay to resell the car and pass it on to the customer in the form of a higher rate. It is usually more profitable to privately sell the old car and use the proceeds of this sale as a down payment for the new car.

Car loan without Private credit

Car loan without Private credit

With each loan, the borrower must have an appropriate credit rating have to do to obtain a loan. Vehicle dealers prefer to check the creditworthiness of their customers with the help of Private credit information. If there are negative entries, car financing via the dealer is usually excluded. An alternative is to take out a car loan without Private credit, as offered by some banks. However, due to the higher risk, these banks require additional collateral and higher interest rates on their loans. Here is worth a comparison of the various loan offers and even with the house bank should be requested. Especially as a long-standing customer who reliably meets his payment obligations (as the house bank can see directly), there is often the possibility of borrowing to auto finance.

Tip: Online you will find more comparison calculators to find the best car loan.

Tips for car financing

When considering auto finance, consider the following before making any decision or selection:

  • Car financing is always better than attacking financial reserves that are earmarked for retirement or other existential things when buying a new or used car.
  • Compare different offers from car dealers and banks and do not forget your house bank. Always take into account the total cost of the loan and not just interest rates. “
  • To keep the cost of a car loan as low as possible, you should choose the loan term as short as possible, but as long as necessary.
  • If possible, make a down payment – the higher this is, the lower the monthly installments will be.

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