Car Finance: What is a Balloon Payment?
A residual payment or a balloon payment as it's commonly referred to. is like a reverse deposit. It's a lump sum payable at the end of the term. As an example, if you had a $30,000 loan and a $5,000 residual or balloon, it means that over the course of your loan, be it three, four five years, you're going to pay off $25,000 and the very last payment will be $5,000. You've got a few options when you get to that last payment of $5,000. Some people will pay it in a lump sum just to own the car outright. Some people will trade in the car and upgrade and some people may choose to refinance that balloon amount over a year or two and keep the car as well.
IN THIS VIDEO: Senior Asset Finance Broker Francis Valente explains what a balloon payment is by providing an example.
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