Calcualte a balloon payment

Everything you need to know about your balloon payments

Information verified correct on October 20th, 2016

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 based on a forecast 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:

  • Reduce your repayments.
    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 balloon payment is generally flexible, so you can agree on the amount with the lender. A standard balloon 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 of 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.

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.

Was this content helpful to you? No  Yes

Related Posts

Beyond Bank Low Rate Car Loan "Special Offer"

A great rate for cars under 2 years old.

IMB New Car Loan

This fixed rate new car loans up to 2 years old features no early repayment penalties

CUA Fixed Rate Car Loan

A competitive car loan that offers flexible repayment options and no account keeping fees.

RACQ New Car Loan

A low fixed rate loan from RACQ suitable for buying a new car.

Ask a Question

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the privacy policy, receive follow up emails related to and to create a user account where further replies to your questions will be sent.

2 Responses to Everything you need to know about your balloon payments

  1. Default Gravatar
    Gopinath | May 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.

    • Staff
      Elizabeth | May 23, 2016

      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,


Ask a question