Balloon payments explained: lower repayments, a final bill
Understand what a balloon payment changes, how it affects repayment estimates and why the final amount needs its own plan.
What is a balloon payment?
A balloon is an agreed lump sum payable at the end of a finance term. Deferring part of the principal can lower regular repayments, but it leaves an amount to settle at the end.
A lower repayment is not the whole cost
Compare the scheduled repayments, final balloon and fees together. For the same rate, principal and term, deferring principal generally means paying more interest than repaying it earlier.
Plan for the final payment
Consider how you would fund the balloon from savings or other available funds. Do not assume refinancing will be approved or that selling the asset will cover the balance.
Use the calculator carefully
Change the balloon while keeping the amount, term and interest rate the same. Look at both monthly repayment and total interest. The calculator excludes fees and uses an illustrative rate, so it is not a quote.
Questions to ask the provider
Ask for the balloon amount, total amount payable, early repayment terms and what happens if the asset is worth less than the amount outstanding. Read the agreement before committing.
Further reading
ASIC Moneysmart: car loans explains comparing rates, fees and loan features. Ask a suitably qualified adviser about your circumstances.
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