What is the difference between a finance and a balloon finance?

by David Jenyns on November 27, 2011

Question by zak-civic00: What is the difference between a finance and a balloon finance?
I’m planning on purchasing the all new mercedes benz glk 2010..and when i checked the pricing online the balloon finance is cheaper than the finance. i just want to know what the difference between the 2 deals are.

Best answer:

Answer by rmoore_63
Balloon financing allows you to have low payments with a large final payment. Most people can not make the final payment and end up getting rid of the car before the balloon payment is due. Just know that if you do get rid of the vehicle, you have not been paying on the principle as much so you will still owe alot more than standard financing. If balloon financing is the only way you can get into the vehicle because of the cheaper payments, then you are buying more car than you can afford. This is the same problem you are seeing in the housing crisis. A general rule is pay now or pay later.

What do you think? Answer below!

Worldly25 November 27, 2011 at 11:20 am

Balloon is normally a set time such as 36 months For 35 you pay a small payment and the 36 month the entire balance is due.
The second choice is a fixed amount spread equally over the 36 months. Stay away from the balloon

dieterzakas November 27, 2011 at 11:46 am

Traditional financing means your payments are the same every month for the life of the loan, e.g., $ 500.

In balloon financing, your payments will be lower, except at the end; this will be several times higher. In such an arrangement, your payment may be $ 350, but your final balloon payment might be $ 7000.

The latter type of financing is what trips up people, as they’re able to make the smaller monthly payments at least until something happens – they lose their job, the economy turns sour, they have huge medical expenses, etc. Then they find themselves unable to make that balloon payment.

When exploring your options, have you crunched your numbers to be able to afford that car? (This is an important step in preparing for a big-ticked purchase.) Next, do you have enough money saved to be able to cover that balloon payment?

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