Car Balloon Repayments & Residuals
If you are looking to purchase a new car, you might be asked the question of whether you’d like the option of a “Residual Value / Balloon Payment” attached to the loan. While balloon loans are not for everyone, there are a number of benefits associated with taking this option, depending on your financial circumstances. In this article, we take the guesswork out of balloon payments. Discover what a Residual Value/Balloon Payment is, the benefits of taking out this option when applying for a loan, a sample car loan scenario and what your options are when a balloon payment is due.
What are car balloon repayments and why do they exist?
A “Residual Value” or “Balloon Payment” are the same thing. In short, a balloon payment is paid to a financier at the end of a loan term and after all monthly repayments have been made.
A balloon payment or payments cannot be made throughout the course of the loan, however you can make additional loan 'principle' repayments. These only reduce your total loan amount and bring the balloon/residual balance forward.
Residual Value/Balloon Payments can be described in dollar amounts or as a percentage of the loan amount.
Benefits of a balloon repayment
● Repay only part of the loan principal over its term to reduce monthly repayments
● Increases affordability and borrowing power
● Helps a customer manage their cashflow better
● More closely matches the repayment of the loan’s principal with the vehicle's value over time
Balloon repayment sample
1. A new car buyer borrows $40,000 over 5 years
2. Gets a $10,000 (25%) Residual Value/Balloon Payment on the loan
3. Lowers monthly repayments
4. Owes the financier $10,000 at the end of the 5 year loan
What to do when a residual value / balloon
payment is due - your options
● Keep your car and pay out the Residual Value/Balloon Payment to end the loan.
● Refinance or "roll over" your Residual Value/Balloon Payment into a new loan.
● Sell the car and use the money to pay the Residual Value/Balloon Payment. Apply for a new car loan to replace the old vehicle. Check out Turn Finance for loan options.
● Trade in the car as part of purchasing a replacement vehicle then pay the Residual Value/Balloon Payment on the current car loan can in the process.
Need finance? Check out Turn Finance for a complete range of car financing options.