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Understanding Balloon Payment in Car Financing

A balloon payment allows the borrower to reduce his monthly repayments by owing the lender a lump sum at the end of a loan term. This option is not for everybody, especially those who are planning to trade in their car and upgrade. To learn more about this, read through these slides.

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Understanding Balloon Payment in Car Financing

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  1. Car Finance: What is a Balloon Payment?

  2. A residual payment or a balloon payment as it's commonly referred to. is like a reverse deposit. It's a lump sum payable at the end of the term. As an example, if you had a $30,000 loan and a $5,000 residual or balloon, it means that over the course of your loan, be it three, four five years, you're going to pay off $25,000 and the very last payment will be $5,000. You've got a few options when you get to that last payment of $5,000. Some people will pay it in a lump sum just to own the car outright. Some people will trade in the car and upgrade and some people may choose to refinance that balloon amount over a year or two and keep the car as well.

  3. IN THIS VIDEO: Senior Asset Finance Broker Francis Valente explains what a balloon payment is by providing an example.

  4. Still confused about the ins and outs of car financing? We can make it a whole lot easier for you. Not only will our brokers help you understand everything there is to know about your car finance, they’ll also find the best deals for you. Visit our website today to get started.

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