Why a Balloon Payment Makes Financial Sense When Used Correctly

Factoring a balloon payment into a car loan can come with some appealing benefits, as long as the buyer clearly understands the conditions

Balloon payment car loans

Both brand-new and second-hand vehicles can be very expensive. For many people, the cost is what stops them from upgrading their car. Leading finance broker National Loans explains that balloon payment car loans can make financial sense when used correctly and, depending on cash flow, can provide greater flexibility to buyers.

A balloon payment is often referred to as a residual payment. National Loans, which also provides caravan finance and boat finance, says that having a balloon loan can make buying a car more attainable as it puts a percentage of the overall cost on pause, but the buyer must consider the balloon payment and how they will make that repayment at the end of the loan term.

National Loans points out that it's also important for buyers to stay within their means. When determining if a balloon loan is right, the buyer should consider what they can afford in monthly repayments, as well as factoring in additional car expenses. They should still be able to comfortably afford to sustain their lifestyle.

While balloon payment car loans involve a large amount of the cost of the vehicle being paid out at the end of the loan term in a lump sum, there is some flexibility, particularly for those with a good credit history. National Loans clarifies that the balloon amount can be refinanced, settled or the vehicle can be traded in.

Balloon payment car loans are well-suited to those who like to upgrade their vehicle often. If trading in the vehicle at the end of the loan term is the buyer's preference, National Loans recommends choosing a balloon loan that is a similar size to the cost of the vehicle's current value and to trade in the vehicle when it reaches the breakeven point. This is when the trade value of the car is in line with the settlement amount owed.

For those with a good credit history, refinancing the loan to cover the balloon payment is another option. This can work to the buyer's advantage, especially if they can secure a better interest rate.

When considering if a balloon payment car loan is right, it's important to fully understand the terms and conditions and conduct due diligence to ensure it corresponds well to the individual's circumstances. National Loans can help buyers secure a car loan, as well as a caravan loan or a boat loan.

Source: National Loans

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Categories: Banking, Finance, Insurance

Tags: Balloon payment car loans, boat finance, Car Loans, caravan finance


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