How do I calculate car loan repayments with a balloon payment?
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Start with the loan amount (the price less your deposit or trade-in). The balloon is paid at the end, so only the rest is paid off through regular repayments, while interest is charged on the whole balance, balloon included, for the full term. The formula is: repayment = (loan minus balloon divided by (1 + i) to the power of n) x i divided by (1 minus (1 + i) to the power of minus n), where i is the rate per repayment and n is the number of repayments. The calculator above does this for you, with and without the balloon.
What is a balloon payment on a car loan?
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A balloon payment, also called a residual, is a lump sum you agree to pay at the end of a car loan. Because part of the loan is left until the end, your regular repayments are lower during the term. When the last repayment is made, the balloon is still owing. You then pay it in cash, refinance it into a new loan, or sell or trade in the car to cover it.
How much balloon can I have on a car loan?
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It depends on the lender, the loan term, the type and age of the car, and your situation. Each lender sets its own maximum, and it looks at what the car is likely to be worth when the balloon falls due. A sensible balloon is one you could clear by selling the car at the end, without topping it up from savings. Rohan checks the limits for your car and term before you commit, so the number you plan around is one a lender will actually accept.
Does a balloon payment save money?
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No. A balloon lowers each repayment, but it usually costs more in total. You owe more of the loan for longer, so you pay interest on the balloon amount for the whole term, and the balloon itself is still owing at the end. The calculator shows the extra interest next to the lower repayment, so you can see the trade-off in dollars. A balloon suits people who want lower repayments now and have a clear plan to pay out the lump sum.
What happens if I cannot pay the balloon?
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Talk to your lender before the balloon falls due. The usual options are to refinance the balloon into a new loan, which needs a fresh approval, or to sell or trade in the car and use the money to pay it out. If the car sells for less than the balloon, you pay the difference. If your circumstances have changed and you are struggling, ask your lender about hardship help early. A broker can line up a refinance a few months before the end date.
How do I get out of a balloon car payment?
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During the loan, you can pay extra off the balance if your loan allows it, which shrinks what is left at the end. Check for early payout fees first. You can also refinance the whole loan to one without a balloon. At the end of the term you have three choices: pay the balloon in cash, refinance it, or sell or trade in the car and use the proceeds. Rohan can compare these on your numbers so you pick the cheapest exit.
Can I refinance a balloon payment?
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Often, yes. Refinancing a balloon means taking out a new loan to pay it, so the lender assesses you and the car again, and the new loan has its own rate, fees and term. Lenders look at the age and value of the car at that point. Start a few months before the balloon is due, so you are not rushed into whatever your current lender offers. Our car finance team compares lenders for the refinance the same way as for a new loan.
Is a balloon the same as a novated lease residual?
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They work in a similar way: both leave a lump sum to pay at the end, which lowers the regular payments. The difference is the product. A car loan balloon is agreed between you and the lender, and you own the car from the start. A novated lease residual is part of a lease arranged through your employer, and the residual follows the lease rules and tax treatment. Ask your employer’s lease provider or your accountant how the residual on a novated lease is set.
Should I pay weekly, fortnightly or monthly?
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Pick the frequency that lines up with your pay, so the repayment always comes out after your income goes in. In this calculator, weekly and fortnightly repayments add up to slightly less interest than monthly, because the balance comes down a little sooner. Some lenders simply convert the monthly repayment into a weekly amount, so the saving depends on how your lender charges interest. Ask before you choose, or have Rohan check it for you.
Does a calculator result mean I am approved?
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No. The calculator is an estimate based on the numbers you enter. A lender looks at your income, expenses, debts, credit file and the car before it approves a loan, and it sets the rate, fees and any maximum balloon. Your actual repayment can be higher or lower than the estimate. If you want a figure you can rely on, send your result to Rohan and he will compare lenders on your real situation.
