A balloon payment is the large repayment amount that is due at the end of your car loan term.If you want the benefit of lower repayments but don’t have a sizeable deposit for a new car, a balloon payment is an attractive option. But they are not an ideal choice for everyone, and it’s important to know the pros and cons so you can make the right decision.
Benefits of choosing a balloon payment
You can buy the car you want
A significant advantage of a balloon payment feature is that it dramatically reduces the monthly repayment amount you need to pay. This means that you can purchase a car you might not have been able to afford and minimise the impact on your cash flow.
Another benefit of opting for a balloon payment is the tax deductions applicable on the interest of commercial car loans.
Before you make a final decision, there are also a few drawbacks to balloon payments to consider:
- Should you be unable to make the balloon payment when it’s due, you could be forced to refinance the amount and endure an extended loan period.
- If you find yourself unable to pay the amount owing for the balloon payment, it will negatively affect your credit record.
- You may end up paying more than your vehicle is truly worth.
Do you need more information on how balloon payments work so you can make the right decision? Speak to one of our knowledgeable finance brokers at Simply Finance who will be glad to answer your questions.