What if I can't afford the balloon payment?
Balloon loans typically have lower monthly payments than traditional loans. But they may come with higher interest rates. If a borrower can't make a balloon payment, they may need to refinance their loan or sell the asset purchased with the loan money.
You'll Need to Repay or Finance a Large Payment
If you don't have the money on hand to make the balloon payment, you'll have to find it—possibly by refinancing your loan or taking out another loan. House flippers sometimes use balloon mortgages because they plan to sell the home before the balloon payment comes due.
If you can't pay it, you can't keep the car. You might never own the car - If you want to keep the car, you'll need to find the money to make the balloon payment – you could do this through savings, a personal loan, or even refinance using a HP product.
Refinancing Options: Managing Balloon Payments
The new loan typically has a longer term and smaller monthly payments, making it more manageable. Refinancing can be beneficial if your credit score has improved since taking out the original loan, as you might qualify for a lower interest rate.
This means making the full balloon payment when the loan matures. Extend the loan. A lender may be able to give you a short-term extension, delaying the date that the loan matures. The extension might be 60 to 180 days.
- Make the balloon payment in cash. If your financial situation allows you to pay the balloon payment directly, then, of course, the car is yours to keep.
- Sell your car. ...
- Trade in your car. ...
- Return the car. ...
- Refinance your car.
If you think you can't afford your balloon payment, contact your lender sooner rather than later. You may be able to renegotiate the terms of the loan, benefiting from an extension or refinancing the balloon payment.
Cons of balloon mortgages
Risk to home: Because you need to make a lump sum payment when the loan comes due, you'll either need to save enough cash, refinance or sell the home. None of these options are guaranteed, and if you can't make the payment, you could lose the home and severely damage your credit.
One must identify the loan amount first to calculate the regular payments as determined, and then subtract the sum of the regular payments from the original loan amount. The amount that remains at the end is the balloon mortgage payment that one requires to make.
When refinancing, you're essentially applying for new, additional credit to cover your balloon amount. And according to the National Credit Act (NCA), new credit requires a new credit agreement (in this case, a finance contract). These rules are designed to protect you, as the consumer, from over-extending yourself.
Can I pay a balloon payment in installments?
With a balloon payment (or residual), you'll pay instalments for a percentage of the loan amount over a term, and at the end of that term, you agree to pay another amount over the remaining term.
At the end of the five to seven-year term, the borrower has paid off only a fraction of the principal balance, and the rest is then due all at once. At that point, the borrower may sell the home to cover the balloon payment or take out a new loan to cover the payment, effectively refinancing the mortgage.
Can a borrower get out of a balloon loan payment? If you have taken out a balloon loan and are finding yourself stressed or unable to pay the final payment, you can consider refinancing.
Not being able to afford a balloon payment may lead to a cycle of debt because you will need to refinance it. If you default on your balloon payment, you may be forced to sell the car, sometimes for less than what is still outstanding on it. If this happens, you could end up without a car and still be in debt.
One way out of a balloon payment is to refinance the loan to another mortgage before the balloon payment is due.
Once you have paid this lump sum to the lender, the car then belongs to you. However, this lump sum may be more than you can afford in cash. One option is to refinance your balloon payment.
If you're able to, you can simply pay the balloon in full, once-off. You can even settle your entire financed amount and end the contract early.
Extend Your Mortgage
Some lenders will extend your balloon loan for a few years without changing the terms of the loan. They may increase the interest rate or ask you to partially pay down the principal, but you'll keep your home.
Benefits. A large balloon payment is likely to mean your monthly payments will be lower. If you love your car, you can keep it if you're able to make the balloon payment.
The best strategies for avoiding a balloon payment are to negotiate with your lender and make larger payments toward the principal earlier on in the loan's term. Negotiating with your lender may involve extending the term of the loan, which can give you extra time to figure out how best to proceed.
Can you negotiate a balloon payment?
Negotiating the final balloon payment is sometimes possible, depending on the lender's policies. Successful negotiation can prevent damage to one's credit score; however, failure to agree on terms could lead to negative implications for credit history.
The most significant risk of a balloon mortgage is foreclosure if the borrower can't make the balloon payment at the end of the term. Foreclosure can result in the loss of the home, emotional distress, and impact the borrower's credit negatively, generally for seven years.
- Unsecured loans with balloon payments usually have a higher interest rate than conventional loans.
- Paying that large balloon payment at the end of the loan may be financially difficult for your business.
Yes, and we can help you refinance!
If you currently have a car on PCP and want to keep it but can't afford the lump sum, we can help you refinance the balloon payment. We have a bespoke lending panel that can offer finance for PCP final payments You don't need to refinance with your current lender either.
Balloon payment option
The maximum balloon facility is 35% and is subject to the year, make and model of the vehicle and the finance period. Terms and conditions will apply. At the end of the agreement period, you have the following options: You can apply to refinance the balloon payment amount for a further period.
