Car financing with final installment (do or not?)
You must have heard of it, car refinancing with a final installment. But what exactly is it and how does it work? I will try to explain to you whether it is a wise move to use this when buying another car. After all, you are left with a residual debt of which you are not yet entirely sure whether you can pay after a somewhat longer period. On the basis of a number of practical examples you can see for yourself whether you will use this.
|Rate calculation personal loan|
|Found by us:
|Annual cost percentage||11.9%||9.9%||8.7%|
Warning in advance
With all providers of a special car loan you can see that the interest is almost always on the (much) too high side. With one lender even twice as much as if you would take out a personal loan entirely independently with a separate company. So pay attention to this. It may seem useful to go for a credit that is specifically designed for this purpose. However, this is often not done to serve the consumer, but rather to be able to request a higher interest. This is exactly what is going on with car financing with a final installment. But if you understand all the pros and cons, you can safely use them.
What is it exactly
Car financing with a final term is discussed in a more or less decent way. But actually it concerns lease-purchase. After all, the car only becomes your full property after paying the remaining debt. Now there is perhaps a somewhat contaminated past on the word hire-purchase, but I doubt whether that also applies at the moment. As long as you pay attention to where you take out the credit. Always do this with a reliable party with clear conditions and percentages. I will once again highlight an example that can only be requested through an intermediary (eg car dealer).
Car sellers that are connected to the Santander system can calculate online what the installments will be and how much the interest will be. You can also check this yourself to make sure that no excessive amounts are charged.
How is it calculated
The image above shows how the request starts. It couldn’t be much easier in this case. You start by entering the price of your new car. You then specify how much you will receive in return for your ‘old’ car or how much you wish to pay. As the penultimate step you indicate what you want to pay at the end of the ride, please note, this amount must be paid in one go on the predetermined date. In the last field you choose the duration, 12, 24, 36, 48, 60 or 72 months. If you have entered everything, you will immediately see a number of things on your screen.
No down payment or exchange
I opted for a car with a sales value of € 15,000 with no down payment or exchange, a final term of € 3,750 and a term of 60 months (5 years). You will then see the following in the result.
Monthly period during 60 months is € 254
Annual cost percentage 8.3%
Total costs of the amount you specified is € 18,937.
You can find this expensive or cheap. I think it is a fact that the exact costs are immediately clear. I cannot imagine that you will be left with questions after this result.
If I leave the same calculation with regard to purchase, duration and down payment to another provider in this area (De Autofinancier), it is immediately noticeable that the interest rate is considerably lower at around 6.8%. I only see a result for a longer duration of 72 months instead of 60 months. Another, quite substantial difference is that no final installment can be specified and then the entire offer actually changes more to a personal loan . You can apply for this better and cheaper elsewhere.
Sell in the meantime
If you have agreed on a term of 60 months (5 years) and you want to sell your car after 4 years, you can easily pay the final installment with the proceeds of the car. You can use a number of benefits in this way. First of all, you keep the monthly installment low because a substantial amount is designated as a final installment; you do not pay any repayment on this final installment. Secondly, you can pay the closing time with the sale of the car. You have driven a car for 4 years with relatively low costs.