Is a balloon payment car loan the right choice for you?
01/05/2025
When you apply for a car loan, one thing you’ll need to consider is whether to choose a loan with a balloon payment.
A balloon payment is a lump sum due at the end of the loan term. Instead of paying off the entire loan through regular monthly repayments, you repay a portion up front and defer the rest to the end. This final amount is the balloon.
THE PROS
A balloon structure can lower your monthly repayments, making the loan more affordable in the short term. This may be useful if you plan to sell or trade in the car before the balloon payment is due, or if you expect your income to increase over time.
THE CONS
You’ll owe a significant amount at the end, which could be difficult to pay unless you’ve planned ahead. A balloon structure also increases the total interest paid over the life of the loan. And if the car’s value drops below the balloon amount, you could end up owing more than it’s worth.
IN SUMMARY
Think carefully before committing to a balloon structure: your loan will be more flexible, but will also be dearer and riskier. If you’re unsure what to do, I can help you weigh up your options.
