We're buying a car and a balloon loan sounds a good fit with our savings, but I am concerned about the risks.
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Is there another option for keeping down the monthly repayments?
abbielee
2 years ago
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
Balloon loans are very popular in the US and not as well known in the UK.
The nature of making the balloon payment is the very reason that the monthly costs are low as you are hardly paying anything at all towards the actual cost of the car.
paying the balloon can be difficult if you have otherwise spent your savings but if you havent got the balloon now, you will probably need to be saving as much money each month as you would "save" on the lower loan costs. In the long term you might be better off with a traditional loan that will reduce all through the term gradually reaching zero.
The nearest comparison to this is like having an interest only mortgage with no repayment vehicle in place and "hoping" that you will find the money in 25 years. This task would be just as difficult with a smaller sum of money in only 3-5 years.
if you dont plan on keeping the vehicle perhaps consider one of the leasing options?
i would suggest that you ask as many questions from the car dealership as possible and then compare how they stack up against other dealers from the same car group and others so that you can at least compare if you are getting a good deal for your circumstances.
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The nature of making the balloon payment is the very reason that the monthly costs are low as you are hardly paying anything at all towards the actual cost of the car.
paying the balloon can be difficult if you have otherwise spent your savings but if you havent got the balloon now, you will probably need to be saving as much money each month as you would "save" on the lower loan costs. In the long term you might be better off with a traditional loan that will reduce all through the term gradually reaching zero.
The nearest comparison to this is like having an interest only mortgage with no repayment vehicle in place and "hoping" that you will find the money in 25 years. This task would be just as difficult with a smaller sum of money in only 3-5 years.
if you dont plan on keeping the vehicle perhaps consider one of the leasing options?
i would suggest that you ask as many questions from the car dealership as possible and then compare how they stack up against other dealers from the same car group and others so that you can at least compare if you are getting a good deal for your circumstances.
