Buying a car is usually one of the bigger financial commitments you will take on in your lifetime. Whether you are in the market for a new model or intend to approach a used-car dealer for a quality preowned vehicle, the most important step in the car-buying process is determining how you will pay for it. With the year-on-year increase in car prices, many potential buyers find that vehicle financing is the only way to afford their dream car.
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When financing a new set of wheels, buyers can choose to attach a balloon payment or residual to the loan. Including these balloon car payments in your repayment plan will reduce the value of your monthly repayment but requires an agreed-upon amount to be paid at the end of your agreement period.
What is a balloon payment?
A balloon payment refers to an inflated lump sum the borrower must settle at the end of their vehicle repayment period, with interest having been accrued up until then on this amount. Rather than extending the repayment on the total cost of the vehicle over the average six-year period, the borrower and the bank agree that a certain percentage be pushed to the end of the finance term. This keeps monthly instalments lower, but if the buyer is unable to settle their debt on the balloon payment, they often resort to selling the vehicle to liquidate its value in order to settle the financier for the outstanding balloon value.
AutoFin Assist is dedicated to ensuring that you retain ownership of your vehicle despite any outstanding balloon payments. Our services include providing cash loans suitable for settling outstanding payments with the bank. We arrange affordable and competitive interest rate repayments and offer flexible terms of 4, 5, or 6 years. Furthermore, we liaise with the bank on your behalf to streamline the process and guarantee you can continue to use your vehicle as normal.
The risk of balloon car payments
Balloon payment structures aim to improve your month-to-month cash flow, as it defers a portion of the principal amount to be repaid at the end of the loan term. It may also allow you to purchase a new or more expensive vehicle. They can, however, be confusing and overwhelming to vehicle buyers. Therefore, it’s important to know everything about this repayment structure before agreeing to it. While the payment plan may seem attractive at first, it may require you to withdraw from your savings when the due date of the balloon payment arrives. It is crucial to carefully assess the long-term implications and risks associated with this type of financing arrangement before committing to ensure that it aligns with your overall financial objectives.
Despite the appealing benefits of balloon payments, there are many notable disadvantages. An immediate drawback of these plans is the depreciation of the vehicle’s value over time. When the repayment term expires, your car may be worth significantly less than what you initially paid for it, leaving you at risk of a financial loss. If you cannot meet the balloon payment at the end of the loan term, you may be required to sell the vehicle to cover the outstanding amount. However, due to depreciation, the sale proceeds might not be sufficient to settle the remaining balance, leaving you responsible for the shortfall.
When to contact Autofin Assist
After our team has assessed your situation, they will share the necessary paperwork for your application. This application will have to be completed and sent back to our team with the relevant supporting documents. By leveraging our extensive network of lenders and our industry expertise, we ensure that you receive a payment plan that aligns with your financial needs.
If you need to secure a cash loan to cover an upcoming balloon payment, we are ready to provide personalised support and guidance every step of the way.