If you’ve been trying to find the best options for car finance in Perth, you might have come across the term “balloon payment”. It might sound a bit odd, but it’s a real option that can change the structure of your loan.
For the right buyer, a balloon payment can offer flexibility and lower monthly costs. But there’s also a few important things you’ll want to keep in mind.
In this guide, we break down how balloon payments work, what to consider before choosing one and whether they suit your budget and plans.
In a standard car loan, you’ll pay off the loan in regular installments. But if that doesn’t work with your financial situation, you can negotiate for a balloon payment.
A balloon payment is a lump sum due at the end of your loan term. Because you’re paying a larger amount at the end, your monthly repayments will be smaller than in a standard loan.
For example, let’s say you take out a $30,000 car loan over 5 years with a 30% balloon payment. That means:
At the end of the term, you’ll make a $9,000 lump sum payment
Leading up to that, you’ll make repayments on $21,000 (70% of the loan) across the 5 years
With this setup, you’ll reduce your repayments and give your monthly cashflow a boost. But it also means you’ll have large bill due at the end (and you’ll need a plan to handle it).
Balloon loans are often chosen for one main reason: lower repayments during the life of the loan. That can be helpful in several situations:
You want more breathing room in your monthly budget
You plan to upgrade your car before the balloon payment is due
You’re expecting a bonus, tax return or payout to cover the balloon later
You’re using the car for business purposes and want to manage cash flow
Lower monthly repayments
More flexibility with cash flow
Suits short-term ownership plans (e.g. if you’d like to upgrade every few years)
May allow you to borrow a bit more up front
Big payment due at the end of the term
If you purchase a car that depreciates quickly, you could end up owing more than the car is worth
Interest may be slightly higher compared to standard loans
When it’s time to make the balloon payment you typically have three options:
Pay the amount in full using savings or a lump sum from elsewhere
Refinance the balloon into a new loan and continue making repayments
Sell or trade in the car for an amount that covers or exceeds the balloon
By now, you’ve probably realised that balloon loans work best when you have a clear plan in place. If you’re unsure how to handle the balloon, speak with our Perth-based car loan brokers and see if a standard loan with regular repayments might be best for you.
Car finance isn’t a one-size-fits all process, so balloon payments don’t work for everyone. They suit buyers who:
Understand how the structure works
Have a plan for the final payment
Want lower monthly costs for a fixed period
Are buying cars that hold their value well
You might want to consider another type of car loan if:
You want to own the car outright without large end payments
You’re unsure about your future income or car use
You don’t want the pressure of a large final bill
Our crew find that balloon payments are popular with business owners, sales reps and those who want a newer car every few years without locking in higher monthly costs. If that sounds like you, click here to get in touch!
Balloon payments tend to work best with newer cars or well-maintained used vehicles that hold a strong resale value.
If you’re looking at a car that may depreciate quickly or is already several years old, standard car finance from our Perth office might offer more long-term value and stability.
If you’re confident in your financial position and have a clear plan for the end of the loan term, a balloon payment car loan can give you the flexibility you’re after. But remember, like all financial decisions, you need to look ahead and weigh up the whole picture – not just the lower repayments and better cash flow.
At Loans Unlimited, our crew will help you explore all your options and tailor a car loan structure that makes sense. Whether it includes a balloon or not, you don’t need to figure it all out on your own.
To learn more about balloon loans and start your pre-approval, click ‘Apply Now’.
