There’s Nothing Festive About Balloon Payments

By FlexClub, September 21st 2021

A balloon payment (also called a residual payment) is a larger-than-usual, one-time payment at the end of the long-term loan term. That means you’ll be making small little payments for a few years and then when the term of your loan is about to come to an end, you’ll have to pay a fat sum of money. 

The trouble is, most people can’t afford that fat sum at the end of a loan. So they end up selling the car or refinancing it for another few years. This is a new agreement and means you must pay for an extra 12, 24, 36 or 48 months depending on the option you choose. It also means getting stuck with the same car for way longer than expected or desired. 

Long-term loans, the same vehicle year after year, and the haunting stress of long-term debt. *Shudder* 

The point is, there are some definitive cons of balloon payments when buying a car:

  • You end up paying much more interest over a longer period of time
  • Balloon payments may also be subject to interest that piles up unnoticed until the balloon payment is due
  • If you have opted for a balloon payment finance scheme in order to pay for your vehicle you may be subjected to stricter/harsher terms if you decide to refinance

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