Do you know what a balloon payment auto loan is? It has two stages. The first you agree to pay a regular payment for a period of time and the you have a final payment which is often substantially greater than your regular monthly payments, usually the balance owed on the car. In most cases it is better to avoid the balloon payments and opt for regular monthly installments.

Balloon payment auto loans are easier for a borrower to afford at the beginning of the loan but harder in the long term as the final payment looms. But there are many benefits to buying a car in balloon payment auto loan. Mainly the effect of keeping your initial payments low and over time allowing your income to increase.

What is a balloon payment on a car?

In balloon payment car finance, the car is not paid in full when the loan term ends. Instead, borrower will make one large or balloon payment to complete the entire term of his loan. Balloon loan usually keeps monthly payments lower which mostly consist of interest payments.

For instance, in a balloon auto loan, borrower requires to make 60 monthly payments on the loan which is amortized over 120 months. When a 60 month period ends, there are still 60 payments remaining. Borrower may now choose to pay off the remaining 50% balance or refinance the remaining loan amount.

You will glad to know that there are usually no down payments in balloon payment auto loans. It’s easier for the purchaser to buy a car in balloon payment auto finance. With many balloon payments, you can also refinance at the end of the term.