Car Financing with Residual Value vs Installment Loan: Make the Right Choice
You are approaching the end of your car financing with residual value and you need to pay the remaining percentage of your vehicle’s price. Should you pay cash, sell your car or switch to a classic installment loan? Discover how to choose the most advantageous option for your budget in 2026.
Get your free simulation for Financement AutoEnd of Contract: What Happens Next?
You have financed your car with a residual value formula. At the end of the credit contract, you must pay the residual value of your vehicle – usually around 40% of its initial value.
Understanding the difference between keeping, selling or refinancing your car helps you avoid surprises and optimize the total cost of your financing.
Concrete Example: How Does Residual Value Work?
Imagine the catalog value of your new car is €30,000. You decide to finance 60% of this price over five years, which means you borrow €18,000 through your car financing contract. Throughout 60 monthly repayments (five years), you pay back this amount. At the end of the contract, there is still a residual value of €12,000 to be paid – the remaining 40% of the vehicle’s value.
This structure allows for lower monthly payments during the contract, but it requires a clear plan for what happens when the residual value becomes due. The decision you make at maturity will directly influence the total cost of your car and your financial flexibility in 2026.
Before choosing, take the time to compare paying cash, selling your car at its residual value, or replacing this residual amount with a classic installment loan. Each option has its own advantages and constraints depending on your situation and your intention to keep or change the vehicle.
At the End of Your Contract: Three Options
1. Pay the Residual Value in Cash
You have the necessary liquidity and simply pay the €12,000 residual value in one go.
In this scenario, you become the full owner of the car without additional financing costs. It is the most economical option if you have sufficient savings and want to keep your vehicle for several more years.
2. Sell the Vehicle at Its Residual Value
You intend to change cars. You sell your vehicle at approximately the residual value amount (here €12,000) and use this amount to settle the outstanding residual value with the lender.
This choice is ideal if you like to drive recent vehicles and renew your car every few years, while avoiding paying the residual value from your savings.
3. Finance the Residual Value with an Installment Loan
You either do not have the liquidity or you want to keep your vehicle after the five-year period. In this case, you can take out a classic installment loan to refinance the residual value of €12,000.
You spread the repayment of this amount over a new period, at the APR applicable to installment loans. This solution gives you flexibility, but it is important to compare the total cost with other options.
Car Financing vs Installment Loan: Which APR Is More Attractive?
In most cases, the APR (Annual Percentage Rate) of car financing with residual value is more attractive than the APR of a classic installment loan. This is why, if your intention from the start is not to sell your car after five years, it is often more advantageous to finance the full purchase price of the vehicle directly rather than opting for a residual value structure and then refinancing the balance.
The logic is simple: by financing 100% of the car price at a competitive car financing rate, you avoid having to resort later to an installment loan, which generally has a higher APR. Over the entire duration, the cost of credit can therefore be lower if you plan to keep your vehicle in the long term.
Conversely, if your strategy is to regularly renew your car, a residual value formula with an attractive car financing APR can offer you lower monthly payments and a clear exit scenario after a few years.
Why Is the Car Financing APR Often Lower Than the Installment Loan APR?
There are two main reasons why the APR on car financing with residual value is usually more attractive than that of a classic installment loan. First, this type of financing typically applies to new vehicles that are in perfect condition. Only a new car, with a predictable depreciation, will have an interesting residual value after several years.
Second, new vehicles are sold with warranties and protections (manufacturer’s warranty, assistance, etc.) that significantly reduce the lender’s risk compared with a used vehicle. As a result, the financial institution can offer a lower APR on this type of financing than on a personal loan without specific collateral.
This difference in perceived risk between new and used vehicles explains why an installment loan taken out later to refinance the residual value may be more expensive, even if the borrowed amount is lower. Anticipating this from the outset helps you structure your car financing intelligently in 2026.
Key Advantages: Residual Value or Full Financing?
Your choice between car financing with residual value and full financing depends above all on how long you plan to keep your vehicle and your cash position. Here are the main strengths of each strategy to help you decide clearly.
Advantages of Car Financing with Residual Value
- Lower monthly repayments during the contract, thanks to the residual value at the end.
- Ideal if you plan to sell or change vehicles after about five years.
- Often a more attractive APR than a classic installment loan.
- A clear exit strategy: pay the residual value, sell the car or refinance it.
Advantages of Full Car Financing (No Residual Value)
- You finance 100% of the purchase price from the start at the car financing APR.
- No large balloon payment at the end of the contract.
- Particularly interesting if you want to keep the vehicle well beyond five years.
- You avoid taking out an additional installment loan later at a potentially higher rate.
Which Option Should You Choose in 2026?
If you want to buy a new vehicle and plan to sell or replace it after about five years, car financing with residual value is an attractive solution. It gives you lower monthly payments and several options at the end of the contract.
If, on the other hand, you prefer to keep your vehicle after five years, full financing of the car at a competitive car financing APR is often more advantageous than combining a residual value structure with a later installment loan.
Get your free simulation pour Financement Auto