If you are looking for a car loan whereby the monthly repayments are reduced and you pay off a larger amount of the loan at the end of the term then you may wish to consider a balloon payment finance package. Our experts have access to a wide range of lenders and can advise you on the best deals that meet your requirements
Balloon payment car loans explained
Balloon payments have been around for a long time, but it is only recently that they are seeing a resurgence in the financial market as lenders aim to improve their lending statistics. In simple terms a car loan with balloon payment is one in which a large amount of the loan is held until the end and then you are expected to make a lump sum payment as your final instalment.
Advantages of a balloon payment loan
If you take out a car loan with a balloon payment then you will find for most of your loan period you will have payments that are lower than you would pay for the same loan on a normal repayment strategy. This means that you can potentially afford to take out a larger loan than you might otherwise have been able to and get the car that you want rather than having to settle for something that isn’t quite right.
Disadvantages of a balloon payment loan
If you take out a balloon payment car loan you are going to have to make sure that you have a plan in place for you to then pay off the final larger instalment at the end of the loan term. Saving regularly into a savings account is likely to be the most effective way of doing this as you can then spread the cost of repaying the final lump sum over the entire loan term. If you get to the end of your loan term and find you do not have the money to pay off the final instalment you will find that finding the finance to pay for that loan could be expensive and you could end up paying very high interest rates on the remaining loan.
It pays to prepare
Before you take on any kind of loan you need to do research beforehand. You will need to understand how much it will cost you in the long term, and if you have a balloon payment loan you also need to know how much that payment is going to be and how you are going to plan to meet it. Understanding your own finances, what comes in and what goes out each month, will help you to figure out exactly what loan amount is going to be affordable for you to repay.
If you know that you will be getting pay rises or bonuses at some point in the future you can factor these into your calculations. You don’t need to rely on your own maths to be able to compare all of your loan options and weigh up all of the costs; instead you can use an online loan calculator to do all of the hard work for you. All you need to do is to type in the figures you have worked out from your income and outgoings along with the interest rates, loan amount and loan term to then get a complete cost for each loan you are considering.