Mobility is one of the most significant achievements of modern times. Especially in rural areas, you are sometimes left without a mobile vehicle. Even if there are small shops, petrol stations, and kiosks in the villages, the car becomes necessary at the latest when the place of work, a hospital, or similar distant destinations have to be reached. But how do you buy a car if you don’t have the necessary cash? One of the most popular forms of credit is title loan financing. In this guide, we will explain in detail how it is used, how it is calculated, and when it is used. In a few little minutes, you can find out all you need to know!
Car title financing, also known as final installment financing, is a widespread form of vehicle financing, and car title loans entirely online are a popular option. The principle is very similar to leasing or hires purchases. Loans that are granted in the form of balloon financing are structured according to an elementary policy:
The reasons for the popularity of the title secured loan for car financing are apparent.
Dealer advantages: Dealers have an excellent sales argument for their customers, which can be found online. Attractive advertising offers and promises a favorable installment credit and provides so for a proper boom of the car motorcycle title loan.
Customer benefits: Car buyers profit from the favorable conditions of the car credits after the title loan procedure. Even without capital employment, so that a new or a used vehicle can be financed effortlessly. Only the monthly installments of car title loans online must be paid.
Unfortunately, many customers lose a very high conclusion rate. In principle, they only pay for the loss in value of the car every month. Thus the load can be kept relatively small in a small loan depending upon vehicle type and vehicle value, which animates the customer to purchase with online title loans.
The very high final title loans installment can be paid by follow-up financing. Alternatively, the vehicle can be returned to the dealer following balloon financing, and the car can be sold on the open market. All three variants have advantages and disadvantages, which we will discuss in more detail later in this guide.
The final installment in the amount that remains after the agreed payments have been paid and the title loan financing has expired, and in the best case can be paid by the residual value of the car or motorcycle. With a balloon loan, the final installment is always very high, as the most robust feature of this form of financing is the small monthly installments. If you pay less beforehand, you will have to expect even higher final title car loan installments afterward.
The final installment can be paid in several ways:
Small loan title financing is also known as «three-way financing.» The borrower has to choose one of three possible ways to return the car at the end of the term.
Return to the dealer: One of the three ways is to return the vehicle to the dealer. Once the term of the loan has expired, the car can be returned to the car dealer. The dealer will, of course, check the condition of the vehicle and thus determine the actual market value. If, for example, a final installment of 12,000 euros was agreed when the contract was concluded and the car has a value of only 8,500 euros, the borrower must pay the cash for this difference.
Sale on the open market: Of course, the borrower can also sell the vehicle on the free market, especially in cash need for a small price. Possibly the chances on an appropriate selling price are here even clearly better than with a dealer. It depends, of course, on the model, the equipment, and the condition of the vehicle. Certain brands and models offer some advantages here because they can be sold better than cars of other manufacturers. Even the most exotic in terms of equipment will find it challenging to find a new owner later on.
Taking over the car: The third way is to take over the vehicle. In this case, the borrower wants to keep the vehicle. For this, the consumer has to pay the final installment. It was contractually agreed beforehand in an easy title loan deal. If the necessary funds are not currently available, he can pay the last payment with follow-up financing. In this case, he may have to pay more or higher costs and interest than during the balloon financing.
This question cannot be answered universally. It all depends on the circumstances. Title loan financing (also called balloon loans) was developed to make it easier for end customers to buy a vehicle. Credit institutions are always coming up with new products to persuade customers to conclude the best title loan agreements. Nevertheless, we would like to mention a few examples in which title loan financing could be particularly suitable.
Students all have the same problem. Prestigious universities are often out of reach. Sometimes it’s worth moving to a larger city, but in many cases, a car can overcome the biggest obstacles to mobility. Unfortunately, most students also have the problem of not being able to afford a car. Besides the university, there is often only room for a part-time job whose income has to be used almost entirely for living.
Secured loan financing is very suitable for students because the small monthly installments accommodate the financial situation of the students where the money is often tight. After completing the vehicle financing, the car is available and can be paid in small installments. Here, too, the high final payment and possibly a further loan for compensation are available, but only at the end of the term.
Families also like to use better title loans financing as car financing. If both parents go to work, funding conventional with higher deductions should also be possible. If the family grows and one of the two parents takes care of the offspring, an income is lost after the parental allowance has expired. Without a car, however, family life can hardly be managed. Children have to see a doctor, go to sports, always need materials for school and are, of course, dependent on their parents. The title loan helps families, even in financially difficult times, to finance a car that can be paid in small monthly installments.
In many cases, young people who have just moved into their first own home do not have much capital. The furnishing of the apartment, the ancillary costs, and of course, the rent has to be paid. On the other hand, the earnings at the beginning of the professional career are not yet sufficiently high to be able to buy a car. Balloon financing is the perfect product for young people who want to be mobile but can only pay a small amount per month for the vehicle.
Especially at the beginning of self-employment, balloon financing is an outstanding possibility to be able to drive a representative company car without burdening yourself with a huge monthly amount, as is often the case with leasing or classic car financing. The self-employed person initially pays only the loss in value of the vehicle and only after expiry the relatively high final rate.
Financings all have something in common. They are concluded for a specific term. During this period, the loan amount is either settled in full or paid with a final installment. The same applies to balloon financing. The dealer (lender) grants a car loan via the participating bank, which is concluded with low installments and high final payment.
In most cases, balloon financing is agreed for a period of 12 to 60 months. The following criteria are essential for calculating the term.
Follow-up financing: If follow-up financing is not desired, the car must either be paid for in cash, returned, or sold on the open market. If the vehicle is sold, the sales proceeds should, in any case, cover the final automobile title loans installment. The calculation of the balloon financing is therefore based on the expected residual value of the vehicle. If the forecast is wrong or if the duration is too long, the remaining value may be significantly lower than the closing rate. Further financing must then offset the resulting difference.
Vehicle type: Depending on the vehicle type, a higher or lower residual value must be applied. Some cars sell better than others, even if age, equipment, and condition are very similar. Popular cars sell more efficiently and in better conditions.
Manufacturer’s warranty: Since the value of a vehicle drops rapidly when the manufacturer’s warranty has expired, it must, of course, be included in the calculation of the running time. Some manufacturers grant a warranty of 2 years, some however also of up to 5 years or more. In some cases, it is even advisable to extend the manufacturer’s warranty by making an additional payment to be able to sell the car later at a significantly higher price.
If the borrower appeared in person at the bank branch in the past, the application could now be made by telephone or via the Internet with car title loans entirely online. Of course, it is still possible to visit a branch, but the Internet banks generally offer more favorable conditions, as they can dispense with the costs of branches and staff.
To be able to apply for a title loan, the car dealer first needs a few key data:
He then makes a non-binding inquiry to the lending bank, which is answered via the Internet within a few minutes. If any information is still missing, it can then be conveniently forwarded by telephone or post. The application for balloon financing is then processed within a short period.