What is a Balloon Repayment? | Car Loan Help

Balloon Repayment | Car Finance & Other Types of Finance

Definition

A balloon repayment is a lump sum of money due at a certain period of a loan, usually at the end. What a balloon repayment allows is for the borrower to enjoy an asset at a lower repayment figure than without a balloon. Instead of all the principal being paid off progressively during the loan, a portion remains to be paid, what is called the 'balloon payment'

How a balloon loan works

A loan without a balloon features regular repayments which go towards paying off both the principal and the interest components of the loan.

Lets take a $20,000 Holden Commodore as an example.
Borrowing $20,000 at an interest rate of say, 13% for a 3 year term.

Loan without a Balloon Payment
Each payment goes towards reducing both the principle and the interest of the entire amount.

Here the payments work out at $673 per month

Loan with a Balloon Payment
Each payment goes towards paying the interest of the entire amount, but the outstanding principle is reduced by a lower proportion. This is done to give rise to the balloon amount payable at the end of the loan .

If we take a $8000 Balloon, the monthly repayments work out at $491

The $8000 falls due at the end of the loan term. Either a cheque will have to be drawn, or the amount can be refinanced or the vehicle sold and part of the proceeds put toward the balloon repayment.

How can I get help with my loan?

GetApproved.com.au has arranged hundreds of loans both with and without balloons. Our experts have the knowledge to help you with all types of finance including car loans. Contact us or enquire today.