Benefits of a Balloon Payment Car Loan

Along with all of the other options for car buyers these days, balloon payment car loan setups can be attractive to buyers who can qualify for them. A balloon payment car loan set up is essentially the opposite of a high down payment; the borrower pays lower monthly installments in exchange for a very high lump payment at the end of the loan term. Although many argue against this type of car loan for specific reasons, a balloon payment car loan does have its benefits.

• A balloon payment car loan buys time: The lower payments during the loan term allow for the borrower to collect the cash due to pay off the entire debt. Some scenarios include other investments that may mature during the loan term, or changes in income that will allow the borrower to pay off the entire debt.
• A balloon payment car loan allows for a "sale option": If the borrower holds the title in the interim, he or she has the option of selling off the vehicle and using the resulting cash to pay off the loan. It's important to talk about this situation when taking out a balloon payment car loan, as liens or other types of restrictions may prevent or delay resale.
• A balloon payment car loan is essentially "lump credit": The lender carries much more of the deficit throughout the term of the auto loan, leaving more cash in the hands of the borrower.
• A balloon payment car loan generally offers a lower chance of repossession: Because of the fact that the loan payments are smaller than they would be with a different type of loan, there is a lower chance that repossession agents will show up at the door looking to take a vehicle.
• A balloon payment car loan generally offers fixed rates: For any unsecured car loan, the norm is for the loan to carry fixed rates of interest, so that the borrower knows what total amount they will eventually pay and does not have to worry about changes in the interest rate of the loan due to fluctuations in the market.
• Whether the vehicle has an anti-theft system

Aside from these benefits there are still some liabilities with this type of loan. The potential problem comes when the bill is due for the entire loan at the end of the loan term. In addition, balloon payment car loans can be hard to qualify for, as lenders will not want to grant this kind of loan to any kind of credit risk. A good general credit score, high income and available assets will help a borrower secure a balloon payment car loan for a "deferred payment" situation where the lender holds debt for the term of the loan.