How does a brand new car financing work?

 How does a brand new car financing work?

In Germany these are the most common models:

Usual bank credit. The car costs 20,000 Euro, you want to finance it over 4 years, so the amount of money is divided by 48 months. You have to add the interest (three or four percent at the moment). The monthly payments are the same for each of the 48 months, but in the beginning the share of the interest is higher. So, you pay some 420 Euro per month, and after 4 years the car is yours. In most cases the bank will check your financial background before they give you the credit, and they will store the title of the car, so that you cannot sell it as long as you owe them money. They may demand that you get a full coverage insurance. So they can either get the car or money from the insurance if something goes wrong

Bank credit with initial payment: This basically is the same as above, but you pay a certain amount of money in the beginning, for example 5,000 Euro. So your monthly payments are smaller, and you pay less interest. Maybe you have an old car which you can sell, so this gives you the money for the initial payment.

Ballon payment: The new car costs 20,000 Euro in the beginning and will lose 50 percent of its value in 4 years. So you pay 10,000 Euro within 4 years (approx. 230 Euro per month), and after these 4 years you make up your choice: Either you pay the missing 10,000 Euro or you give back the car - or you continue paying your monthly fee.

In many cases the financing of a car is part of the deal. Every car manufacturer has a bank which offers financing. If you get your financing from your own bank, they want to earn money with that. If you get your financing from the dealer or from the factory, it often is an incentive for you to buy a car - like a discount on the price or some accessories for free.