If you opt for a car loan without the balloon payment, your car loan will only cost $36,685.2. With the example above, the total amount of your car loan will be $38,133 with the balloon payment. What you save on your monthly payments, you may have to make up for-and then some-when you pay the lump sum at the end of the loan term. That is a significant difference in monthly repayments. The same car loan without the balloon payment at the end of the term will have yourmonthly repayments at $611.42. Your monthly repayments will only be $485.55. For example, you were approved for a $30,000 loan payable in 5 years with 6.97% interest and a $9,000 (30%) balloon payment. So, how does a balloon payment work for car loans? Let’s crunch the numbers. With a balloon payment, you pay part of the principal loan at the end of the loan term instead of bundling that with your regular repayments.Theballoon payment amount will be deducted from the principal loan amount and the difference is where your regular monthly repayment will be computed. This is an optional payment scheme that you can include in your loan agreement. What is a balloon payment?Ī balloon payment, also called residual value for car leases, is the amount paid to the lender once all repayments have been made on the loan. In this article, we tell you everything you need to know about balloon payments and if they are the right choice for you. If you want to know more about balloon payments, we have you covered. The specifics of the balloon payment depend on your agreement with the lender. It is defined as a lump sum payment payable to the lender at the end of a loan term. When applying for a car loan, you will see the term ‘balloon payment’ floating around more often than not. Advantages and disadvantages of balloon payments
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