Car title loan with low installments. What are the benefits of balloon installments?

Low installment on a car title loan? Using the balloon installment formula, customers can kill two birds with one stone – enjoy a lower loan charge each month and replace the car every few years. What do you have to consider 

when taking out a loan with a buyout installment?

The search for the best financing option for larger purchases mainly boils down to such a loan that will ensure the lowest possible burden on the home budget throughout the entire loan period – the lower the installment, the better. We checked which loan offer would meet such expectations in the case of a car title loan.

When deciding to buy a car on credit, it is worth remembering that a standard loan is not the only option. If a customer is looking for a new car in a dealership, dealers will offer him a buyout loan. It works similarly to own contribution, except that it is paid at the end of the loan agreement. 

The choice of this form will provide a much lower monthly installment, but the borrower must take into account the repayment of a large part of the borrowed amount in the last month of the contract – however, this is not a problem if the customer wants to change the car to a new one at the end of the agreed period.

The loan option, in which during the first months only part of the car’s value is repaid in principal and interest installments, is the domain of companies financing the purchase of a car from specific automotive concerns. 

In line with the TCM (Trade Cycle Management) concept, such a credit system allows you to replace the car with a new one at the end of the loan agreement and signing a new one. The borrower does not have to worry about paying off half the value of the car as part of the last installment.

Resale or buy back a car?

This loan structure is somewhat reminiscent of leasing or long-term rental . By taking out a short-term loan (for 3-4 years depending on the offer, although 7-year contracts are also available), the customer repays only part of the car’s value with interest as part of monthly installments – a natural consequence is a much lower installment compared to a traditional cash loan , in the monthly liability to the bank includes principal and interest, taking into account the entire loan amount Depending on the loan period, the amount of the last installment may be up to half the value of the car purchased on loan.

Half of the car price, payable as part of the last monthly installment, is unlikely to be affordable for many borrowers. As part of financing with the use of a balloon installment, the customer in the showroom may, however, resell the credited car – the market price of a 3-year-old car is ultimately to cover the repayment of the last installment and the own contribution to take out a loan for another car, while maintaining the same amount of the monthly installment the whole is carried out so without involving additional cash, and the customer will leave the showroom in a new car . 

Of course, the customer may also opt out of this option and keep the car to himself by paying the entire purchase value or dividing it into installments.

David Curry

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