However, there are generally a few options available when the balloon payment loan is due: Where you have elected to add a balloon payment to your loan, it must be paid as a single lump sum at the end of the loans term. This in turn can provide a range of additional benefits, such as increasing affordability and maximum loan size, assisting with cash flow management, and more closely matching the repayment of the loan's principal with the vehicle's value over time. The primary benefit of a balloon payment is that you’ll pay less on your monthly repayments throughout the lifetime of the loan. Balloon payments related to car loans (not leases) where they are set as percentages or values not based on the value of the car. Commonly related to car leases (not loans), residual payments are a factor of the final estimated value of your vehicle accounting for depreciation considerations. Both a balloon and residual payment imply paying a defined amount at the end of your car loan, specifically designed to reduce your ongoing repayments throughout the life of your loan prior to the end of term. In short, yes, but the practical differences are minimal. Is there a difference between balloon and residual payments? We've got a handy car loan calculator that lets you vary your balloon payment amount and assess your various repayment amounts. Except for leases, having a balloon payment on a loan is optional and one of our finance consultants can determine if you qualify. ![]() The amount can be represented as an absolute dollar value or a percentage of the borrowed amount. Your monthly repayments will be lower than if you had no balloon, however you will still owe the lender $10,000 at the end of the five-year term.Let’s say you buy a new car and borrow $40,000 over five years and elect to have a $10,000 (25%) balloon payment on your loan.This allows you to repay only part of the principal of your loan over its term, reducing your monthly repayments in exchange for owing the lender a lump sum at the end of the loan term. Read on to learn how it affects your loan, and some of the factors you should consider when choosing a balloon payment.Ī balloon payment is a lump sum owed to the lender at the end of a loan term after all regular monthly repayments have been made. If you’re chatting to one of our dedicated finance consultants about this option, they’ll know what you’re talking about whether you say balloon or residual, but for this article we’re going to call it a balloon payment! The inclusion and size of a balloon payment can affect the amount of your regular monthly repayments as well as the amount owing at the end of the loan. ![]() When you’re selecting a car loan, a key consideration is whether you wish to have a residual value or "balloon payment" on the loan, and, if so, how large you want it to be.
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