Calculate a car loan with a final installment – here’s how

You need a new car and therefore also a car loan. Then you have several models available for financing. One model is the car loan with final installment. The final balloon rate is the center of a loan calculation. Closely related to the final installment is the residual value of the car at that time. So how can you calculate a sensible car loan with a balloon payment?

What can I afford?

Tip

Before calculating, it makes sense to consider your own general conditions. Everyone has a different relationship to their car and attaches importance to different things. Therefore, think carefully in advance. What kind of car you can afford and want, and what's important to you in a new car.

First, consider what you can afford to pay in the first place overall. People handle this question differently depending on their personality type. Some don't want to exceed a certain amount of money for a car. The others want to get the most out of their opportunities. Depending on the rough total amount, you can then consider a model.

And you can use this model to make the exact calculation of your loan with a balloon payment. In addition to the model, you will also need a suitable duration. This is also a very personal issue. Some people drive their cherished car as long as it makes economic sense. The others want to enjoy a new model in two years again.

To which type you belong, you must answer for yourself. From this you can reliably derive a term that makes sense. You can base your calculation for the loan with final installment on these.

Calculating depreciation from a car

If you have your favorite model in mind, you need the following key data for the calculation of your car loan with final installment:

You have to calculate or estimate the loss in value of the car. Official tables such as the Schwacke list can help you here. But such official lists are not always freely available. This makes it harder for you to calculate the car residual value. But since it is an important parameter for your car loan with final installment, you can also resort to other tools.

For example, you can look in online used car portals, what a corresponding car costs. Free estimates from used car dealers can also be helpful. Since you cannot calculate the car's residual value accurately in this way, you should estimate generously. That means, rather set a smaller value for your car loan with final installment.

Consider uncertainties

Attention!

When calculating the depreciation of a car in this way, you should always take uncertainties into account. Minor accidents, scratches or environmental influences such as hail can unexpectedly reduce the value of the car. Since minor damage to the car is statistically very likely, you should include it in the calculation.

So always set a residual value for your loan with final installment, reduced by a few percent. This way, you can be sure that your car loan with final installment will still work even if a little something comes up. So the balloon rate, as the final rate is also called, should always be a little lower than the residual value of the car actually is. So you have a little buffer that lets you sleep peacefully.

Calculate rate

Now you reliably have all the data you need to calculate your final installment car loan rate. You can also use a traditional rate calculator to do this. In fact, the final installment no longer plays a role in this calculation. You simply reduce the total purchase cost of the car by the balloon rate you determined for your car. Keep in mind, however, that you must always calculate the total amount to determine the rate.

The balloon payment also accrues interest over the life of the annuity. So enter the total amount in the installment calculator as the amount to be financed. Specify a term beyond that. This will give you an overview of how high the installments would be without a final installment.

Then increase the term so that after the actual term there is a sum equal to the final installment. If you calculate a normal installment loan with the car's residual value remaining at the end of the actual term, you'll have all the information you need about your loan with a balloon payment.

Adjust data

So now you know the total amount, the final payment and the installment amount from your car loan with final payment. To do this, you need to calculate the depreciation from the car. This task is not quite so simple. Many parameters that you don't even know today can affect the depreciation from the car. Therefore, you should generously calculate the car residual value.

Even if you are already comfortable with the calculated data, you may want to revisit a smaller closing rate. Doing so will increase your regular payments. You will then need to evaluate whether you can still afford the new rate.