Balloon Auto Payments Explained
Everybody knows the two ways to finance a vehicle, buying and leasing. But there’s another option that’s less known: balloon payments. More commonly used for mortgages and business loans, it’s another option that might fit your needs better.
A balloon payment plan is a way to make lower monthly payments up front. Like with any loan, payments are made for the length of the term but at the end of the term a lump sum is due to the lender. The buyer pays interest on the car over the loan term and pays the remaining principal as a lump sum at the end of that term.
For traditional auto loans, the buyer pays principal along with interest throughout the loan term thereby putting equity in the car. With a lease, you don’t have equity in the vehicle, but you’re also not going to be upside down and can give the vehicle back to the dealership at the end of the term for something newer and shinier.
Balloon payments allow you to put equity in the car, but then there’s that lump sum you have to pay at the end.
Balloon payments aren’t for everyone and can either be a good move or a gamble, depending on your financial situation. With a balloon payment, you’re either betting that you will have the funds to pay off the lump sum at the end of the term, or that the vehicle’s value will still be high enough after a few years that you can trade it in or sell it. We want you as a customer to have all the information you need to make a decision on what financing is best for you.
After the loan term is up, you have options for paying the lump sum. You can pay it all off, roll the payment into a new loan on another car or refinance the final payment.
If you want to know more about balloon payments and how they work, or to see if you are eligible, give us a call or fill out our contact form.
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