Key highlights
- A balloon defers a lump sum to term's end
- Lower regular repayments free up working capital
- Interest still applies to the balloon amount
- Plan ahead for the final balloon payment
- Different balloon amounts modelled across the lender panel
A balloon payment is a lump sum left owing at the end of a bus loan. It can lower your regular repayments, but it also needs planning. Here is what operators should understand before choosing one.
What is a balloon payment?
A balloon, sometimes called a residual, is a portion of the purchase price deferred to the end of the term. Because you're not paying it down along the way, your monthly repayments are lower. When the loan ends, you either pay the balloon, refinance it, or sell or trade the bus to cover it.
How does a balloon help operators?
For a charter or shuttle operator watching monthly cash flow, a balloon can free up working capital during the term. It may make a newer, more reliable bus affordable now rather than later. The size of the balloon you may be offered depends on the bus and the term, subject to lender criteria.
What are the risks of a balloon?
A larger balloon means more owing at the end, so it helps to have a plan for that final payment. Interest is still charged on the balloon amount across the term. For how a balloon affects depreciation and deductions, check with your accountant or registered tax adviser.
How do you set the right balloon?
Simon can model different balloon amounts across Overdrive's panel so your repayments and end-of-term position both make sense. Ask for an obligation-free quote today. It's a soft check that won't affect your credit score.
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