Balloon credit: what you need to know

But why balloon? This is what is known as the amount requested when the dealer redeems the car. The balloon credit is a car loan for borrowers who still want a new car.

Similarities with the loan in fine or installment

Similarities with the loan in fine or installment

The balloon credit is similar to the LOA (lease with option to buy) and the LLD (long-term lease): this method of financing is accompanied by an agreement to buy the vehicle, fixing its redemption price at the end of the contract. The refunds of a balloon credit are made over periods of 12 to 48 months (or even 60 months). The contract provides for all closing clauses:

  • – the remaining value due at the end of the contract in rate (example: 40 or 45% of the selling price of the vehicle);
  • – the maximum mileage and the price of the excess kilometers;
  • – the maintenance arrangements (assumed by the user as part of the balloon credit);
  • – the interest rate setting the amount of monthly payments.

Unlike a repayable loan, the borrower only pays interest on the loan with a balloon credit. The outstanding capital will be repaid upon conclusion of the current contract.

Change car with a balloon credit

Change car with a balloon credit

When the loan agreement for a balloon loan expires, it is possible to:

  • – sell the vehicle yourself;
  • – return it to the dealer;
  • – pay the purchase option;
  • – renew the lease for one to two years.

When the borrower returns the vehicle to the concessionaire, it is up to him to pay the remaining capital. Then you can take out another loan balloon, or change the formula and opt for the LOA, the LLD or the self-depreciable credit.

The points of vigilance of the balloon credit

 

With a balloon credit, you benefit from low monthly payments and the opportunity to change your car frequently, without worrying about resale. But the personal contribution (about 15% of the price of the vehicle) is definitively lost. In the event that the user of a loan balloon wants to return to a more conventional financing, he will not have the financial value from the sale of his car.

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