What are the benefits of a balloon payment?

Buying a vehicle with a secured car loan or other form of new car finance is an increasingly popular option in Australia. According to IBISWorld research from January this year, the number of new motor vehicle sales in the country rose by 4.1 per cent between 2009 and 2014, while the actual value of lending given out for these purchases increased by 10.4 per cent in the same time period.

So there aren't just more of us borrowing to buy a car, campervan or other vehicle - we're actually taking more money out as well. 

At AAA Finance, our panel of more than 23 lenders gives you a wide variety of options when it comes to a new car loan. One popular option is the balloon payment, which allows you to borrow now and make minimal repayments over the loan term, paying off the bulk of the money at the end of the period. But how does this benefit you? 

More flexibility

While a balloon payment can be made at the end of a loan term (generally one to seven years with AAA Finance), it does not have to be. If you have found yourself in an advantageous financial position during the period of your new car loan, you could get rid of the lump sum and be sitting pretty in your finances. 

The Australian Securities and Investments Commission (ASIC) notes that making repayments that are larger than required doesn't just cut down your loan term, it can save you thousands in interest. Having a balloon payment means that even if you can't pay it all off right now, down the line you might be able to clear a significant portion of your debt away in one fell swoop. 

Smaller regular payments

Larger regular payments on your new car finance can put a strain on the monthly budget. By using the balloon payment feature on vehicle finance, you can minimise the short term payments and take care of the bulk of the funds down the line. 

While you will often have to prove your ability to repay the balloon sum, making it through this step can be an excellent option for people who want to get on the road and free up cash for the short term. 

This is just one of the many services offered by AAA Finance. To find out more about your options, or to get pre-approved for a loan right away, get in touch with our friendly team.