What is a balloon payment?
A balloon (or residual) payment is the amount you owe to your car loan provider at the end of the term when there are no further repayments to be made.
The purpose here is to reduce the cost of your scheduled repayments by sectioning off a lump repayment for the very end of the loan.
Interested to see how much you can save in repayments? Our loan calculator with balloon payment easily determines the figures for you. Whether you are seeking a car loan for business or personal use, a balloon payment can be financially practical and rewarding.
How does a balloon payment help me?
A balloon payment can be used to better manage your cash flow. This applies to both businesses (where the savings from the reduced repayments can be invested into other areas and see a greater return in profits) and individuals – especially those who have variable cash flow due to salaries that partially operate on irregular bonuses.
Incorporating a balloon payment into your loan lowers the repayments on a car, which is particularly beneficial if you are planning to trade in once the loan ends, or to make an expensive car model more economically affordable.
A balloon payment is also a practical solution if you are considering to sell your car in the future. When a car loan is approved, the funds borrowed do not take into account the vehicle’s trade-in value, so you essentially take out the full amount. Down the line, when you decide to sell your vehicle privately and direct the profits to your car loan, your term length (not your repayments) is reduced.
Here, a balloon payment can help out by counting your extra earnings from the trade-in to the actual reduction, or complete payoff, of the outstanding amount. The key takeaway here? Plan for a balloon payment that can be effectively paid off through your car’s trade-in. Having a general idea of your vehicle’s resale value is important here and we will help you in this area too.
How big should my balloon payment be?
A balloon payment is generally calculated as a percentage of the total loan taken out, and it is up to you to dictate this percentage – as long as it works within the financier’s outlines. The amount depends on various factors, including whether you plan to refinance your balloon payment or pay it off at the end in one shot.
By considering your budget requirements and personal needs, we are able to devise a balloon payment that makes repayments more manageable. Before all else though, we talk to you and get to know your situation so that we can assess if your preferred balloon payment is financially feasible in the long term.
Need some help out with the figures? We have a car loan calculator that comes with a handy balloon payment option. By adjusting the amount, our car loan calculator with balloon payment gives you a clear summary of your repayments and interest charges.
What options do I have for paying off a balloon payment?
Paying off a large lump sum at the end of the loan may sound intimidating, in spite of all the monetary benefits, but we are here to make it easy for you with a variety of affordable options.
You can choose to sell off the car and use the funds to pay for the balloon amount, which also puts you in a good position to take out another loan for a new car.
Alternatively, you may refinance the balloon payment. This is done by converting the payment into a new car loan so that you have more time to pay off the owed amount. If all this sounds good and you want to refinance a balloon payment, get in touch with us first so that we can ensure the most competitive loan for you.