A balloon payment is a term used to describe the lump sum owed to the lender at the end of a car finance agreement. Loans with a balloon payment option generally result in lower monthly repayments, as you are deferring part of the cost to the end of the agreement.
To find out how low your monthly repayments could be with a balloon payment option simply Apply Today, using our no-obligation application form.
The balloon payment is calculated based on the value of the vehicle at the end of the agreement and is often referred to as the Guaranteed Future Value (GFV).
This GFV is calculated by the lender at the start of the agreement and takes into account the depreciation of the vehicle throughout the length of the loan. In other words, the lender is working out the value of car at the end of the agreement.
In car finance, a balloon payment is required for certain types of loan once you reach the end of your agreement.
In a Lease Purchase (LP) agreement, a balloon payment is mandatory and must be paid by the borrower to settle the agreement.
In a Personal Contract Purchase (PCP) agreement you have the option of either;
a) paying the balloon payment and owning the car
b) returning your car to the finance company
c) using the vehicle’s value as a part exchange towards financing a new car
For expert help deciding which loan option is best for you, Apply Today to speak to one of our friendly customer advisors.