
You’ve chosen the perfect car and now it’s time to sign on the dotted line. When it comes to financing, knowing your options can help you make the right choice. One option that may be available is balloon financing. Here are some things you’ll need to know if you’re considering balloon financing.
What Is Balloon Financing?
As the Consumer Financial Protection Bureau points out, the term “balloon” refers to a finance contract in which you’ll have a large, one-time payment at the close of the term. This typically means monthly payments that are generally lower than with traditional financing leading up to the final, larger, balloon payment due at the end of the finance contract. This way, consumers spend less on a month-to-month basis, but are responsible for the balance left on the finance contract at a predetermined time.
To better illustrate this idea, let’s look at how a balloon mortgage works. Typically, these home loans have terms of five or seven years, while the payment is still calculated based on a 30-year amortization, according to Bankrate.com. You can enjoy lower payments over the term of your loan, but once the term is up, you’ll have to plan for the possibility of selling or paying the outstanding amount owed through refinancing the loan — if you qualify – or paying with your own funds. The same principle holds true with balloon auto financing; there’s a predetermined term with fixed installment payments until the final lump sum is due. As with a mortgage, you will have to pay the balloon amount, and that may result in you having to sell your car or refinance.
What Are the Advantages of Balloon Financing?
When you choose balloon financing, your monthly payments are typically lower than payments in a traditional finance contract, however the APR rate is generally higher. This can provide flexibility to better manage your cash flow throughout the term of the financing. As WiseGEEK.com points out, financially savvy consumers can use that extra cash in their pockets each month however they choose, anything from investments to other expenses.
What Are the Disadvantages of Balloon Financing?
It can be very intimidating to see one large lump sum of money due at the end of your finance contract. A balloon financing contract could be advantageous only if you are prepared to have the money necessary to make the balloon payment when it is due. You may be able to satisfy the balloon amount by trading in your vehicle. However, because vehicle resale values and credit conditions may change, you should not rely solely on your vehicle’s potential future trade-in value when considering your ability to make the balloon payment. For example, if the trade-in value of your vehicle ultimately is less than the balloon amount, you’ll have to pay the creditor the difference. To make this work for you, it requires a lot of planning and consideration.
Balloon financing can be a viable option to those looking for auto financing. As with any financial decision, it’s important to research your options and consider your unique situation. Once you have all the facts, you can determine what the right choice is for you.
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Comments
Jeannie H. on May 29, 2014 at 8:33pm
I was wondering if paying extra sometimes will be penalized with the balloon financing option? Also, I was wondering if I already has a car loan with you, is it possible to switch to the balloon financing?
Linda G. on May 30, 2014 at 10:46am
I am interested in buying my leased 2013 eco cruze because I really like it. What are my options? Linda
BETH on May 30, 2014 at 9:37pm
I don't like the fact that I can not call in my payment I do not pay my bills on line and the fact that the only other way to pay my car payment is by mail is stupid I pay all my bills over the phone.and I do not get charged for it.
patrick j. on May 30, 2014 at 11:30pm
I have read the above material about the balloon loans, I was not aware however that my car payment was a balloon payment, I thought it was just a regular month to month payment like I have in the past with other banks , am I wrong in thinking this? is this a regular bank note with regular interest , or is this a balloon loan ? I am really concerned at this point , because I was not told anything about it being a balloon payment at the time of contrancting the loan its self when I bought the car. please let me know what is going on with this loan.thank you for your time, Patrick j Obrien .
doug c. on May 31, 2014 at 12:03am
I want to make a payment for my ally account
Margaret G. on May 31, 2014 at 5:26pm
Ok do we have a ballon financing on how Truck.
John R. on June 1, 2014 at 1:22am
I would like to know what type of a contract I was given. The dealership did all the paperwork. I do Not want a balloon mortgage! Please respond asap so we can make changes if necessary. Thank you for your cooperation on this matter. I bought this vehicle at Auto Nation in Brooksville, Fl
Mary B. on June 2, 2014 at 8:34am
I financed by vehicle with Ally Finance and would like to know my remaining balance. Seems the password I originally set up to view my information online, no longer works. Thanks
Ally A. on June 3, 2014 at 1:23pm
Hi Mary, we’d be happy to check on your balance for you- please email your phone # to allycommunity@ally.com and we’ll give you a call. You can also reach out to customer care at 1-888-925-2559.
Ally A. on June 3, 2014 at 1:23pm
Hi John, we’d be happy to look into your contract for you. So we can look up your account, please email your phone # to allycommunity@ally.com and we’ll give you a call. You can also reach out to customer care at 1-888-925-2559.
Ally A. on June 3, 2014 at 1:23pm
Hi Margaret, we’d be happy to check on this for you. So we can look up your account, please email your phone # to allycommunity@ally.com and we’ll give you a call. You can also reach out to customer care at 1-888-925-2559.
Ally A. on June 3, 2014 at 1:24pm
Hi Doug, we have several payment options including by mail, phone, online and through our mobile app. Learn more about your options here: http://www.ally.com/auto/payment/
Ally A. on June 3, 2014 at 1:24pm
Hi Patrick, we’d be happy to look into your contract for you. So we can look up your account, please email your phone # to allycommunity@ally.com and we’ll give you a call. You can also reach out to customer care at 1-888-925-2559.
Ally A. on June 3, 2014 at 1:25pm
Hi Beth, thank you for sharing your feedback with us. We’ll share your comment with our team.
Ally A. on June 3, 2014 at 1:25pm
Hi Jeannie, all very good questions! We’d like to give you a call to discuss these with you, please email your phone # to allycommunity@ally.com.
Ally A. on June 3, 2014 at 1:40pm
Hi Linda, we’d love to give you a call to discuss your options. Please email your phone # to allycommunity@ally.com and we’ll call you.
rendell r. on June 4, 2014 at 3:20pm
I was looking at your web site and I want to know if I could get the balloon opt.if I already have a car note with you guys
velma n. on June 7, 2014 at 10:57am
I want my payment changed to the 1st of every month not the 6th I keep asking no answer as I have a tendency to spend if not taken out so please take out the 1st not the 6th thank you
Ally A. on June 10, 2014 at 1:43pm
Hi Rendell, we’d be happy to discuss your account with you. Please email your phone # to allycommunity@ally.com and we’ll give you a call.
Ally A. on June 10, 2014 at 1:43pm
Hi Velma, please email your phone # to allycommunity@ally.com and we’ll give you a call to discuss your payment.
gratis s. on December 19, 2014 at 4:55am
When you keep going this awesome work I'll visit your blog often.
Rovinsky L. on January 8, 2016 at 4:02pm
Do you guys offer refinancing loans?
Magen M. on January 13, 2016 at 11:05am
Hi, give us a call at 1-888-925-2559 and we can discuss your account with you.
Kirby M. on February 19, 2016 at 5:40pm
I currently have my truck loan with Ally. Thinking about upgrading to a newer model truck and would like to finance with Ally again if possible. Would also like to investigate the Balloon and ABC products before making my final decision. Thanks again for your help !!!
dwarfus_permelia@hotmail.com on March 17, 2017 at 12:36pm
do you refinance to bring down our payments, even if we have our truck or car financed by you
Ally on March 20, 2017 at 11:52am
Hi, please give us a call at 1-888-925-2559 so we can look into your specific account and discuss.
Sokhan on November 22, 2017 at 5:18pm
Hi do you offer 84months for balloon financing?
John M. on February 5, 2022 at 3:44pm
Is the balloon advantage still available?
Ally on February 5, 2022 at 3:45pm
Hi John, thanks for reaching out. Please give us a call at 1-888-925-2559, so we can assist further.