It may happen that a short-term cash needs arise in the short term. It does not make much sense here to cover the money requirement with a regular installment loan.
The minimum term for installment loans is 6 months in most cases. For exactly this period, also the interest payments, even if the capital requirement exists only for a shorter period. The solution here is a loan with a vehicle registration.
How exactly does a credit with a vehicle registration work?
In the case of a vehicle-letter loan, the borrower’s vehicle acts as a pledge. To minimize the risk and associated costs for both parties, the borrower’s vehicle is transferred to the lender for the duration of the loan. The borrower thus loses the rights of use of his vehicle for a short time.
Before concluding the credit agreement, the exact time value of the vehicle is determined. Now decides also the possible loan amount. This usually corresponds to 80% of the time value of the vehicle.
The full loan amount is paid out to the borrower and a period is specified in which the loan amount plus the borrowing costs is to be repaid. How exactly the borrower raises the sum is up to him. A repayment of the loan is therefore possible at any time.
If the borrower does not raise the amount due at the appointed time, the borrower has the option to extend the term of the loan. If he does not use these or if the sum is not raised despite the extension, the vehicle deposited as pledge is released for auction.
From the proceeds, the open items of the loan are paid. If the auction proceeds exceed the open items, the remaining amount is due to the borrower.
What advantages does this type of financing offer?
The biggest advantage of loan financing over the vehicle registration lies in the high flexibility and the short term of the loan. For many banks, this uncertain or short term is not profitable.
The administrative burden would be too big here. Due to the far-reaching stability of the used car market, the availability of loans with vehicle documents is consistently high, even in times of crisis, when favorable credit conditions are difficult to obtain at the banks.
This form of financing is popular with borrowers, not only because of the uncomplicated and discrete execution. For many users flexibility is in the foreground. Thus, this form of pawnbroking offers the ideal opportunity for interim financing, for example when buying a new vehicle.
So the new vehicle can be paid over the loan amount. For the old vehicle can now be searched in peace and quiet, a new seller. If this is found, the vehicle is triggered. The lump sum calculation of the cost of the loan protects the borrower from surprising costs.