A car loan is a loan that is cheaper than an uncommitted loan for the purchase of a new car or a used car. Appropriate loans can be taken out by car buyers through the car dealer at a car bank or through an independent commercial bank.
The residual value denotes the contractually agreed value of the financed car at the end of the contract term. It is to be distinguished from a final payment, which means a last car loan installment that is higher than the monthly installments. The final installment of a car loan with a residual rate often corresponds to the actual residual value of the car, but it is not absolutely necessary to calculate it properly, in contrast to a residual value agreed in the loan agreement.
For which types of credit is a residual value essential?
Contract design as a car loan with residual value makes sense for balloon financing, which is also referred to as three-way financing. In this case, the vehicle buyer agrees a residual value of the car at the end of the loan term. The assumed loss in value is mainly calculated based on the mileage, so that an underestimation of vehicle use leads to the car not having the agreed residual value. At the end of the original contract term, the buyer decides whether to continue using the car or return it.
When the car is finally taken over, the additional purchase price to be paid corresponds to the agreed residual value, if required, renewed financing for this amount is possible. If the buyer does not want to keep the car at the end of the contract and the residual value is lower than estimated due to a higher mileage than the assumed mileage or due to a possibly careless handling of the vehicle, the customer must agree to a car loan with residual value agreement after the return pay the difference. The particular advantage of a car loan with a final payment is that the three-way financing combines the flexibility of vehicle leasing with the advantages of traditional vehicle loan.
Where can the loan for the car be taken out with a residual value agreement?
Originally, only automobile banks granted a car loan with a residual value agreement via the vehicle dealer, since the purchase and resale of used vehicles is part of the day-to-day business of the vehicle dealer and the respective dealer can offer the returned vehicle himself. In the meantime, commercial banks have also discovered three-way financing as a business model because they can easily resell vehicles returned by their customers to the car dealer.
The vehicle buyer pays a higher interest rate for a car loan with a residual value agreement at a commercial bank than at a car bank, but can also negotiate a significantly larger discount on the car price with the dealer. It is customary to assign the car as security until the loan is finally repaid, both when borrowing from a commercial bank and when car financing is made through the car bank.
In most cases, this is linked to the transfer of the Part II registration certificate to the financing bank and the obligation to take out comprehensive insurance. Comprehensive vehicle insurance is in the interest of the car buyer anyway, so that the buyer does not have to pay back the loan for a car that is no longer available due to a self-inflicted accident or theft.