What’s a Balloon Payment Plan?

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When you buy a new or used vehicle from us at Steve Landers Kia, you know there are two options for financing, buying or leasing. But did you know there’s a third option that’s sort of a hybrid between the two? It’s called a balloon payment. It’s not as common for auto loans — it’s more common for business loans and mortgages — and that may be why you’ve never heard of it. 

A balloon payment plan is a residual payment loan. It’s a way to have lower monthly payments up front. Monthly payments are made for the length of the term and at the end of the term a lump sum payment is due to the lender. The buyer will pay interest on the car over the loan term and pay the remaining principal as a lump sum at the end of that term. 

With a traditional auto loan, the buyer is paying principal and interest throughout the loan term and putting equity in the car. With a lease, you don’t have equity, but you’re also not in danger of being upside down if you make payments and can give the vehicle back to the dealership at the end of the term for something newer. 

With a balloon payment, you do actually have equity in the car, but there’s that lump sum you have to pay at the end. 

Depending on your financial situation, balloon payments can be risky or a good move. With a balloon payment, you’re gambling that you’ll have the funds to pay off the lump sum at the end of the term, or that the vehicle’s value will still be high enough that you can sell or trade it in. We want you as a customer to know what you’re getting into before signing on the dotted line. 

After the loan term is up, you have a few options for paying the lump sum. You can pay it all off, roll the payment into a new loan on another vehicle or refinance the final payment. 

If you have questions about balloon payments and how they work, or want to know if you are eligible, give us a call or fill out our contact form. We can’t wait to serve you at Steve Landers Kia!

Categories: Finance