![]() ![]() A residual payment is usually attached to a car lease not a car loan. Both are paid at the end of a loan but that's where the similarity ends. This is not the same as a balloon payment. When looking at your loan options you might hear the term residual payment. If this is your plan it is advisable that you start looking for a loan a few months before the Balloon Payment is due to ensure you do not default. Your other option is to take out a second loan to cover the Balloon Payment and continue making payments. This marks the end of the loan and the car is now owned by you entirely. You can pay the lump sum payment if you have the money. When a Balloon Payment is due you generally have two options: What Happens When a Balloon Payment is Due? They can then sell the vehicle at the end of the loan term and pay out the balloon amount. ![]() They can keep their repayments low and hold back the balloon amount to use in their business.īalloon payments also suit car owners who like to upgrade their vehicle at the end of the loan period. More often, small businesses and sole trader make use of balloon payments on a business car loan to help their cash flow. For instance, they could have an investment that pays higher interest than what they’d be paying on the car loan. This can free up some capital for the borrower to utilise during the life of the loan.Ī savvy investor could make use of this freed up capital in areas where they may get a greater return. What is the Benefit of a Balloon Payment?Ī Balloon Payment at the end of the loan reduces the repayments on a car loan. This is in exchange for owing a large sum of money when the loan matures. By setting this Balloon Payment option, the borrower is able to reduce the repayments of the car loan. A balloon payment is a designated lump sum (from the car loan amount) due to be paid at the end of the loan.
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