Calcualte a balloon payment

Everything you need to know about your balloon payments

Make sure you know the ins and outs of balloon payments before settling on your car finance.

When researching car loans, you may come across options that offer a balloon or residual payment at the end of the term. These loans can offer you lower ongoing repayments as they reduce your principal.

However, it’s important to understand how balloon payments work, as well as how they’re different to residual payments, before taking on a loan that offers them as a feature.

What’s the difference between a balloon and residual payment?

Both a residual and balloon payment refer to amounts that are left over at the end of a loan term and which need to be paid out at that time. The key difference lies in how these amounts are determined.

A balloon payment is set in an agreement by the borrower and the lender in order to lower the ongoing monthly repayments. Residual value is forecast based on how much the asset will be worth once the loan term finishes, taking into account depreciation. A balloon payment does not take depreciation into account.

What are the benefits of a balloon payment?

Balloon payments offer a number of advantages, including:

  • Repayment reduction.
    This is the main advantage of balloon payments. As the end payment reduces your principal, your repayments will be lowered. This can allow you to finance your car purchase while still keeping your repayments affordable.
  • Flexibility of the balloon payment amount.
    The amount of the payment is generally flexible, so you can agree on the amount with the lender. A standard payment is a few thousand dollars, but can be more or less depending on the lender.
  • Business benefits.
    The increased amount of interest payable may have benefits to those borrowing for business purposes. You will be paying less principal and more interest, and as the principal is non-deductible this can work out in your favour.

Key considerations for financing options with balloon payments

Before opting for lower repayments with a balloon payment at the end of your term, ask yourself the following:

  • How much additional interest will you be paying? While your repayments are lower, working out how much the lowered repayments are costing you in additional interest over the loan term is an important step. Are the long-term costs worth the short-term savings?
  • How will you pay off the balloon payment? Do you have a savings plan to be able to pay off your balloon payment at the end of the loan term? Will you be refinancing, or putting it on a credit card? Do you have an end-goal in mind for how you will manage the payment.

Want a car loan without a balloon payment? Consider the below

Rates last updated September 20th, 2018
$
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Monthly Service Fee Application Fee Product Description Monthly Repayment
Latitude Motor Vehicle Loan
From 6.99% (fixed)
8.1%
$5,000
1 to 7 years
$10
$295
You'll receive a fixed rate between 6.99% p.a. and 14.99% p.a. based on your risk profile
Apply for a loan from $5,000 to finance a new or used car. Flexible repayments and options to finance a classic car.
IMB New Car Loan
5.89% (fixed)
6.24%
$2,000
1 to 7 years
$0
$250
You'll receive a fixed rate of 5.89% p.a.
A low minimum borrowing amount of $2,000 that you can use to purchase a new car or one up to two years old.
Stratton Finance New Car Loan
From 5.29% (fixed)
6.56%
$18,000
1 to 7 years
$8.90
$459.20
You'll receive a fixed or variable rate depending on the lender you are approved with
Apply for up to $100,000 and use cash or trade in a vehicle to use as a deposit. Optional balloon payment available.
Loans.com.au - New Car Loan
5.44% (fixed)
5.99%
$5,000
3 to 5 years
$0
$400
You'll receive a fixed rate of 5.44% p.a.
Finance a new car and benefit from features such as fast approval, no ongoing fees and an optional balloon payment.
IMB Secured Personal Loan
6.89% (fixed)
7.24%
$2,000
1 to 5 years
$0
$250
You'll receive a fixed rate of 6.89% p.a.
Benefit from this competitive rate by securing the loan with a vehicle up to 6 years old. Use this flexible loan for any purpose.
Beyond Bank Low Rate Car Loan
From 5.69% (fixed)
5.97%
$25,000
1 to 7 years
$0
$175
You'll recive a fixed rate of 5.69% p.a.
Take advantage of a competitive rate, pre-approval and no early repayment fees when you finance a car under two years old.
CUA Secured Fixed Car Loan
6.79% (fixed)
6.92%
$5,000
1 to 7 years
$0
$0
You'll receive a fixed rate of 6.79% p.a.
A secured loan with a high maximum borrowing amount up to $100,000. Redraw facility and no monthly fees.
RACV New Car Loans
From 5.99% (fixed)
6.55%
$15,000
1 to 7 years
$0
$399
You'll receive a fixed rate of 5.99% p.a.
A larger loan of $15,000 or more to help you buy a new or used car. 5-hour pre approval available and no ongoing fees.
People's Choice CU Car Loan
From 5.64% (fixed)
5.99%
$20,000
1 to 10 years
$0
$250
You'll receive a fixed rate of 5.64% p.a.
A lower interest rate when you're borrowing over $20,000. Benefit from pre-approval and no monthly fees.
MyState Secured Personal Loan
From 7.99% (variable)
8.96%
$10,000
1 to 10 years
$10
$200
You'll receive a variable rate of 7.99% p.a.
A secured loan up to $75,000 that you can have up to years to repay. Early repayments and redraw facility available.
Bank of Melbourne Secured Car Loan
From 8.49% (fixed)
9.6%
$3,000
1 to 5 years
$12
$195
You can choose a fixed or variable interest rate.
Finance a new or used vehicle and have your choice of interest rate type with this flexible loan.

Compare up to 4 providers

Should you refinance a balloon payment?

Many dealerships make their money by refinancing balloon payments. If you are coming to the end of your loan term and are unable to pay your balloon payment outright, refinancing is an option to consider.

You should consider this as a new credit product and give it the same consideration as you would give before taking on any other loan. Remember that you don’t need to refinance with the same lender, so you should compare your refinancing options before you apply.

Should you refinance or pay out your novated lease balloon payment?

Car loans that offer balloon payments can be a good option to consider as they help keep your ongoing repayments low. However, as they leave you with a large payment to deal with at the end of your term, it’s important you understand everything about this financing option before you apply.

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Car Loan Offers

Important Information*
IMB New Car Loan

You'll receive a fixed rate of 5.89% p.a.
A low minimum borrowing amount of $2,000 that you can use to purchase a new car or one up to two years old.

Loans.com.au - New Car Loan

You'll receive a fixed rate of 5.44% p.a.
Finance a new car and benefit from features such as fast approval, no ongoing fees and an optional balloon payment.

Latitude Motor Vehicle Loan

You'll receive a fixed rate between 6.99% p.a. and 14.99% p.a. based on your risk profile
Apply for a loan from $5,000 to finance a new or used car. Flexible repayments and options to finance a classic car.

Stratton Finance New Car Loan

You'll receive a fixed or variable rate depending on the lender you are approved with
Apply for up to $100,000 and use cash or trade in a vehicle to use as a deposit. Optional balloon payment available.

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2 Responses

  1. Default Gravatar
    GopinathMay 20, 2016

    Is a car dealer liable to disclose a Balloon payment on the loan agreement document, during signing a Commercial loan & mortgage agreement?

    Can the dealer charge Balloon payment at the end of the loan period if it has not been agreed upon or shown on the loan document?

    Thank you.

    • finder Customer Care
      ElizabethMay 23, 2016Staff

      Hi Gopinath,

      All fees, interest and payments, including balloon payments, need to be properly disclosed to you before you sign on to a loan. If the balloon payment wasn’t in your loan contract then you should get in contact with your car dealer to discuss this. If the issue isn’t resolved (that is, they are still requiring you pay the balloon payment) then you may want to lodge a dispute with the Credit and Investments Ombudsmen. You’re able to lodge a complaint online by visiting its website.

      Hope this helps,

      Elizabeth

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