Financing new car with balloon ?
Buyers who wish to finance their new car or second-hand car via a car loan receive an abundance of offers and low-cost car loans via the internet. The majority of the lenders make use of a classic car financing. Several lenders and garage owners today also offer borrowers the opportunity to subscribe to a or balloon . What makes a balloon loan or balloon so different from other types of ?
Balloon car loan gains ground
The balloon is a unique form of borrowing money. Where, in the case of a car financing, an installment loan is used to ensure an equal spread over a pre-agreed time period, the repayment rhythm of a balloon loan is not equally distributed.
With a balloon you pay monthly fixed repayments for a certain amount of time, but at the end of the there is still an outstanding debt of approximately 25% to 50% (the “residual value”). What happens to this residual value depends entirely on the choice of the borrower.
The borrower can decide to purchase the residual value in one cash payment, so that the borrower is the full owner of the car. A second option is to calculate a new installment for the residual balance.
In other words: the lender and the borrower conclude a new loan (usually loan on payment) for the outstanding residual value. A third possibility is to sell the car back to the garage owner. If the actual value of the car is lower than the estimated residual value, the shortfall will have to be adjusted. With a well-maintained car, however, one will get more money than the estimated residual value, and thus make ‘profit’.
Via a balloon car financing one can limit the monthly repayments and thus minimize the impact on his / her family life. When calculating a car financing, therefore, you should ideally compare the different types of before signing a agreement.
Benefits of balloon loan
The large budget freedom is a first advantage that comes to the fore in a car financing simulation per balloon loan. Every individual and family likes to keep as much capital as possible on his / her savings account. Thanks to a balloon you pay a monthly (lower) fixed amount during an agreed period of time. Certainly for borrowers who will have an extra amount of cash available now and a few years but now need a new car, borrowing by balloon is interesting.
In addition, as mentioned above, the monthly repayment amount is lower for car financing per balloon than for a car loan per loan on installment. Because of these lower monthly repayments, you and your family can continue to do fun things every month, such as trips, dinners or holidays.
Finally, you can always travel around with a new car via a balloon loan without having to cough up the entire cost of the car. After releasing the residual value, you can sell the car and invest in a new car, used car or real estate. Even if you do not decide to buy the residual value, you can sell the car back to the garage owner and take out a new balloon loan.
Points of interest balloon loan
Although the balloon during a car-financing simulation does nothing but show benefits, there are several points of interest. In the first place, there is a continuous loan pressure for a car loan per balloon loan. When it is decided to sell the car back and to take out a new balloon loan, the lender is again bound for four or five years.
The higher cost is another disadvantage of borrowing money by balloon loan. Based on car financing simulations, the total interest costs of a balloon are higher. The cost price of the loan, also referred to as the annual percentage rate (APR), is calculated on the basis of the balance of the outstanding debt. And since the venom of car financing is in the tail via a balloon , the APR will also be higher.
Finally, most ors do not allow a balloon to be taken out for a second-hand car. Because of the specific modalities at the end of the , a second-hand car is less interesting for a garage owner to re-purchase.
Compare car financing
If a new car with a value of EUR 20,000 were to be financed through a classic car financing, a monthly fee of EUR 250.96 would be paid back at a rate of 1.50% for seven years. At the end of the loan, the owner of the new car is fully owned, with no outstanding debt.
With a residual value of 25% via a car financing per balloon , the monthly repayment amount is only EUR 188.22. However, the APR will be higher as the debt decreases more slowly and the outstanding balance remains large. At the end of the seven-year period, the option is to buy off the residual value, spread it over time, or sell the car back.
(*): Interest rates are a snapshot. They are therefore purely informative and temporary, can undergo changes and / or be dependent on the loan amount.
(*) Representative Example : Loan on payment of € 50,000.00; Term is 120 months . You pay € 516,02 monthly for a JKP of 4.50% . The total amount to be reimbursed is € 61,922.40. For an exact calculation, request an offer from the above parties.