One of the big questions when you take out a car loan is whether you want a balloon payment or not.
If you haven’t come across this term before, a balloon payment is part of your loan that you pay off at the end of the term. It isn’t paid off by your regular payments, which means you pay less every week/month, but means you have a one-off repayment at the end. For example, if you have a $10k balloon on a $50k loan, then your repayments will be based on the remaining $40k over the term of your loan. Once that’s paid off, you have to pay the $10k balloon payment.
While the idea of lower repayments are appealing, there are two main things to watch out for. Firstly, one day you will have to pay that $10k, so you need to make sure you save for that. And you’re going to pay more overall because that $10k will accrue interest over the term of your loan.
Whether this is a good idea for you depends a lot on your circumstances. Some people like the lower repayments as it means they have more money in their account to cover bills and emergencies. Others prefer to pay off the loan as quickly and cheaply as possible, which generally means no balloon payment.
Find out more: How do balloon payments work?
Car loan balloon payment calculations in summary:
– A balloon payment means you’ll have lower regular repayments
– However, you’ll have a large payment to make at the end of your repayment schedule
– Overall, you’ll pay more on a loan with a balloon payment because that part of the loan still accrues interest over the term
How much does a balloon payment lower your repayments?
The lowered repayments are one of the biggest attractions to agreeing to a balloon payment. But how much do they lower your payments?
The amount things change depend on a few parts of your loan, including amount borrowed, the term of the loan, the interest rate and the size of the balloon payment. Our car finance calculator allows you to put in a balloon payment, meaning you can quickly see the impact. Here are a few examples:
As an example for a comparison, we’ll look at a $30,000 car loan taken out over seven years at 8.5%. We’ve put it into our car finance calculator with balloon payments of 0% ($0), 20% ($6,000) and 40% ($12,000) to see how they differ.
| Loan amount | Balloon payment | Weekly repayments (over 7 years) | Total interest payable | Total amount payable |
| $30,000 | $0 (0%) | $109.42 | $9,828.69 | $39,828.69 |
| $30,000 | $6000 (20%) | $97.34 | $11,432.95 | $41,432.95 |
| $30,000 | $12,000 (40%) | $85.27 | $13,037.21 | $43,037.21 |
At the two extremes of the scale, you end up paying $85.27 back a week rather than $109.42 – giving you an extra $24.15 in your pocket. However, you’ll have to save up $12,000 over the course of your loan for the balloon payment and you’re going to be paying more than $3000 extra in interest on your loan.
For another comparison, we’ll look to increase the loan amount to $50,000 but keep everything else the same: a loan term of seven years at 8.5%. We’ve put it into our car finance calculator with balloon payments of 0% ($0), 20% ($10,000) and 40% ($20,000) to show how it scales.
| Loan amount | Balloon payment | Weekly repayments (over 7 years) | Total interest payable | Total amount payable |
| $50,000 | $0 (0%) | $182.37 | $16,381.14 | $66,381.14 |
| $50,000 | $10,000 (20%) | $162.24 | $19,054.92 | $69,054.92 |
| $50,000 | $20,000 (40%) | $142.11 | $21,728.69 | $71,728.69 |
So by including a 40% balloon payment you can lower your repayments by more than $40 a week (more than $2000 over the year) compared with a 0% balloon, but you’ll have to save up to pay the $20,000 and over the entire loan term you’ll end up paying more than $5000 more.
As you can see, adding a balloon payment to your loan will bring down your weekly repayments but will increase the total amount payable over the whole loan.
Of course, with anything financial, the exact outcomes will depend on your own circumstances. Call our team on 1300 28 57 67 or use our online form to see how things would look for you.
