If you are looking into buying a new or used car soon, there are some terms you will need to learn about and understand. And one of these terms is balloon refinance. It might sound like a confusing term, after all, what do balloons have to do with cars? But a balloon payment or residual is a payment that you make on a car that lowers your monthly instalments which you repay in a lump sum after your loan period is complete. It can help to lower your monthly payments and can help to make your car more affordable.
You can look into a balloon repayment loan if you cannot afford to repay it as a lump sum. This will help with large balloon payments and will mean that you enter into a different financial agreement, specifically for the balloon repayment, in order to repay it. For those who want to buy the car of their dreams, read on below for more helpful information on what balloon payments are and how they work.
So, what is a balloon repayment?
A balloon payment is an amount that is paid at the end of a loan period. It is usually larger than the monthly payments made on the loan and you will likely have to repay it in one lump sum. You can, however, settle the balloon payment with a refinancing option, which is a specific loan that is entered into for specifically repaying balloon finance.
Balloon payments are used to lower the monthly instalments on a car loan. This is useful for those are in the market for a new car, allowing you to choose the right vehicle for your needs with a lower repayment and interest rate.You should be able to repay this once the loan has been paid off, so be sure your salary can cover this when the time comes.
How does it work?
To calculate your balloon repayment amount, you can use an online calculator. For example, if you have found a car that costs R120 000, but you cannot afford the repayments for this, you can opt to have a 25 percent balloon payment (R30 000). This means that you will have lower repayments on the remaining R90 000, but once the loan period is over, you will have to repay the R30 000 balloon payment. You will need to have comprehensive vehicle insurance for your car if you opt for a balloon payment. It ensures that the vehicle you have financed is covered for every eventuality, and is a requirement from many lenders who offer vehicle finance.
What if I can’t repay the balloon payment?
If you feel that you are unable to repay your balloon loan, you can look into balloon refinance as an option. This means that you will have monthly instalments to pay on the amount that is remaining after the loan period has finished. It will become a new finance agreement specifically for the balloon payment.
You can choose a repayment period of between 12 and 48 months, depending on your financial situation. If you have the funds, you can choose to repay your balloon finance in full once your loan has ended. This means that you will pay the entire amount once the loan period is complete. Another option that you can explore is trading in your vehicle and using this amount to cover the balloon amount. If the trade-in value does not cover the full amount, you can choose a refinancing option for the remaining amount.
How do I apply for balloon refinance?Before you look into balloon refinancing, you will need to ensure that your credit rating is positive and that you are making regular payments to your credit card and any accounts you might have. When you submit your application, you will need to include the following documents:
- A valid identity document: You will need to provide this so the bank has all of the correct details on file, especially if you have been married or divorced during the loan period and your name has changed.
- An up-to-date driver’s license: This is to ensure that you are still eligible to drive if you want to take out another vehicle loan with your lender and so that they have all the relevant information needed for their files.
- Proof of address: If you have moved or changed address, you need to provide this information to the bank so that they can send any bills and reminders to the correct address. Again, it is important that they have the correct information on file.
- Three months of bank statements or a recent payslip: This is to show your lender exactly how much money is coming into your account so they are aware of what repayments you can afford to make.
Balloon payments and refinancing might sound like complicated processes but if you have everything in place and speak to your lender in order to understand the terms and conditions, you can finance the car you have been dreaming of.