The Pros and Cons of a Balloon Payment Feb 4, 2022 | Car Loan A balloon payment is a one-off lump sum that you pay to the lender at the end of your car loan’s term. Balloon payments are more common with car loans for businesses and are a great way to help reduce your monthly repayments and free up cash. However, there are a number of advantages and disadvantages that you need to weigh up before deciding to go down the path of a loan product with a balloon payment. Advantages Cash flow The most obvious reason to make a balloon payment at the end of the loan term is so you can free up cash with lower payments over the life of the loan. For businesses, this can be important as the funds can be used in other areas to help you grow your business. If you’re able to save on the upfront costs and delay some of those costs, you could potentially be in a stronger financial position in the long run. As a car loan in Sydney, we know cash-flows can be important for your business. Keep the car new One of the other key reasons you might consider this type of loan product is that it allows you to sell the vehicle at the end of the lease term to make the balloon payment. You’re then able to go and take out another loan to purchase a new car in the same fashion. The allows you to keep the car new which can reduce the cost of servicing and maintenance as the car is generally going to be under the manufacturer’s warranty. You’ll also be able to have a more technologically advanced vehicle. Disadvantages Higher overall cost Generally speaking, if you’re using a loan product with a balloon payment, the overall cost of the loan in the long term is likely going to be higher. This might be OK if you’re putting the funds to better use in the short term, however if you’re not, this type of loan can become a hindrance. Depreciation It’s hard to predict what the value of the vehicle might be when the term of the loan ends. If a car has depreciated in value by more than expected, you might find yourself in a situation where you need to pay back more than the value of the car. This large payment could catch you unaware if you’re not prepared for it. Why Loan Seekers Trust YFA’s Advice? We have helped numerous car buyers finance their dream car and become proud owners. Our experts ensure that there are minimal hassles in attaining the ownership and you are able to make the payments without fail. As a customer-oriented financial advisor, we work with full-integrity and honesty to find the best option to finance the vehicle and get its ownership. Thanks for making us a trusted financer and home loan broker in Sydney. Looking for prudent financial advice? Speak to our property loan advisor now! Phone: 1300 YFA BROKER (932 276) Email: enquiries@yourfinanceadviser.com.au
