A balloon payment is a one-off lump sum that you pay to the lender at the end of your car loan’s term. Balloon payments are more common with car loans for businesses and are a great way to help reduce your monthly repayments and free up cash. However, there are a number of advantages and disadvantages that you need to weigh up before deciding to go down the path of a loan product with a balloon payment. Advantages Cash flow The most obvious reason to make a balloon payment at the end of the loan term is so you can free up cash with lower payments over the life of the loan. For businesses, this can be important as the funds can be used in other areas to help you grow your business. If you’re able to save on the upfront costs and delay some of those costs, you could potentially be in a stronger financial position in the long run. Keep the car new One of the other key reasons you might consider this type of loan product is that it allows you to sell the vehicle at the end of the lease term to make the balloon payment. You’re then able to go and take out another loan to purchase a new car in the same fashion. The allows you to keep the car new which can reduce the cost of servicing and maintenance as the car is generally going to be under the manufacturer’s warranty. You’ll also be able to have a more technologically advanced vehicle. Disadvantages Higher overall cost Generally speaking, if you’re using a loan product with a balloon payment, the overall cost of the loan in the long term is likely going to be higher. This might be OK if you’re putting the funds to better use in the short term, however if you’re not, this type of loan can become a hindrance. Depreciation It’s hard to predict what the value of the vehicle might be when the term of the loan ends. If a car has depreciated in value by more than expected, you might find yourself in a situation where you need to pay back more than the value of the car. This large payment could catch you unaware if you’re not prepared for it. See your vehicle finance options in less than 5 minutes The holiday period is normally a time when people spend more hours at home and some start looking around for a new car. If you’re looking at a loan to purchase a new or second-hand car, it’s important to consider the best way to finance it. The most common ways to buy a car is with cash, or with the assistance of a loan. Which will likely either be a car loan or a personal loan.
Personal Loan Traditionally, personal loans have been used for things like weddings or holidays. However, it is possible to use the funds to purchase a car. The great thing about using a personal loan to buy a car is that it can be faster to obtain. You then have the flexibility to spend the funds from the personal loan as you see fit. However, this might cost you in the long run. A personal loan is typically, unsecured debt. This means that there is nothing backing the loan other than your ability to pay it off with your income. From a lender’s perspective, this is a far riskier type of loan, as there is no collateral in place, in the event that you lose your job and are unable to make your regular repayments. Because of the additional risk, a personal loan will normally attract a higher interest rate which will then mean you’re going to pay more in interest over the life of the loan. Given that a personal loan is more flexible, you can use the balance for things aside from a car, however, this results in more debt that you’ll need to pay off. Car Loan When you take out a car loan it will typically be secured by the car itself. This gives the lender a degree of certainty around the loan. Because of this, you will likely be paying a lower interest rate than you would with a personal loan. However, the process might take a little longer as there will likely be some requirements from the lender around what type of car you’re able to purchase. The other consideration with a car loan is where you get it from. These days many people look to get finance through the dealer. While this might be the easiest option, it will likely not be the best deal to suit your needs. Dealer finance is another way a dealership can increase their profits and they are not working with multiple lenders to find the best deal. If you are looking to take out a car loan, it’s best to speak with a broker in advance and gain a pre-approval. You’ll then know that you’re getting the best option available to you and also what your budget is going to be before you start the search for a new car. See your vehicle finance options in less than 5 minutes With the holiday season fast approaching, millions of Australians are more excited than ever to get away. One of the most popular holiday options in recent years has been heading off in a caravan or camper for a road trip. Before going out and buying a caravan or camper, it’s well worth thinking about how you’re going to finance it. Given that a caravan or camper are normally the second largest purchase most people will ever make – after the family home – it’s wise to have things organised well in advance. Typically, those looking to purchase a caravan or camper have a range of different options. While some people will pay cash, the vast majority will look to finance the purchase with some form of loan. The types of loans that are on offer can be similar to car loans, with the most attractive options normally loans that are secured by the caravan or camper itself. However, there are a number of choices including unsecured loans and personal loans. For people that are unfamiliar with the finance process, they might go directly to the dealer and look to obtain finance that way. However, there can be several limitations if you’re only speaking to a dealer for your finance. Dealer vs Broker While the finance process might be quick if you speak to a dealer, it could end up costing you more in the long run. Dealer’s will likely not be looking to get the best deal for you and will often only work with a specific lender. If you talk to a broker beforehand, they will be able to assist you in finding the best deal suited to your needs, as they have access to a panel of lenders. At the same time, a broker will also be able to look at your personal situation and explore the best finance options that include other considerations, like your mortgage. If you have a home loan already in place, then it could be possible to redraw or even refinance in a bid to use some of the equity. It might even be possible to obtain a lower rate if you’re using your home loan. There are also other levels of flexibility that you can explore with the financing of your caravan or camper, such as having a balloon payment. A balloon payment allows you to have lower ongoing payments and then make a large one-off payment at the end of your loan. However, this might end up costing you more in interest. The other advantage of looking to obtain finance through a broker is that you can organise a preapproval well in advance. That gives you the peace of mind that when you go out and start looking, what you’re buying is well within your budget. Obtaining finance for your new caravan or camper doesn’t have to be difficult, but it’s worth speaking to a broker to assess your options well in advance. See your home loan options in less than 5 minutes See your vehicle finance options in less than 5 minutes |
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