Car buyers receive a car loan when purchasing a new car, a year-old car or a demonstration car from the car dealer’s car bank or from a commercial bank on favorable terms. Most banks also grant discounted car loans for the purchase of used vehicles, but often require a maximum age of the car. http://www.web-documentation.com/best-online-payday-loans-direct-lenders/ has details
It is common to agree a down payment on the car price so that the bank does not finance the entire car purchase price. Instead of or in addition only special payment at the start of the contract, a residual rate can be agreed. This does not necessarily have to correspond to the expected residual value of the car, even if this is often the case.
In the case of a car loan with a residual rate, the lending bank and the vehicle buyer agree in the loan agreement that in addition to the monthly repayment rates, a significantly higher final rate is due at the end of the term. In contrast to three-way financing, the borrower does not have the option of returning the car to the bank at the end of the term of a conventional car loan with a residual rate. The amount of the final installment corresponds to the expected wagon value at the end of the contract term for many contracts.
It is important for the borrower that he has sufficient funds at the due date to pay the final installment. Ideally, there is a right to payment of a savings contract or a life insurance policy at this time, in other cases the vehicle buyer builds up savings during the credit period.
Since, compared to a car loan without a residual rate, the monthly payments for the loan are significantly lower, most car buyers can save the final installment. If necessary, the vehicle purchaser can seek additional financing for the residual rate, but unlike a three-way financing, he does not have a commitment from the previous bank.
Borrowing a car loan with a residual rate from the vehicle dealer and his car bank offers another advantage in addition to an extremely low interest rate: returning the vehicle instead of paying the residual rate is not actually provided for in the usual contract and requires the consent of the bank. The car dealer, who arranges the financing of the car, mediates between the customer and the car bank at the request of the customer, so that the vehicle buyer can usually return the car at the due date of the final installment.
In this case, the actual value of the used car is offset against the residual rate, so that the car buyer either has to pay an additional amount or is given the additional proceeds. When borrowing from a commercial bank, the car buyer pays a slightly higher interest rate for the car loan with a residual rate than for the dealer, but acts as a cash payer and can therefore achieve a significant price reduction.
The car loan with a residual rate is generally useful if the vehicle buyer wants to continue driving the car after the contract term has expired. Those who are unsure should choose flexible three-way financing.