Key highlights
- A balloon defers part of the balance to term's end
- Lower regular repayments can help cash flow
- You may pay more interest across the term
- One broker shows indicative balloon structures across 80+ lenders
A balloon payment, sometimes called a residual, is a lump sum left owing at the end of a finance term. It can lower your regular repayments, but it comes with a catch worth understanding. Here is how balloons work.
How does a balloon payment work?
Instead of repaying the full amount across the term, you defer a portion to a single payment at the end. This reduces each regular repayment during the term. When the balloon falls due, you generally pay it out, refinance it, or sell the vehicle to cover it.
What is the trade-off of a balloon payment?
Lower repayments can help cash flow, but because more of the balance is outstanding for longer, you may pay more interest overall. The size of a balloon is often subject to lender criteria and the vehicle's age and term.
Is a balloon payment right for you?
A balloon can suit businesses that plan to upgrade at the end of the term or expect stronger cash flow later. The tax and accounting treatment of a residual can be nuanced, so check with your accountant or registered tax adviser before deciding.
How do you compare balloon options?
Wondering whether a balloon suits your plans? Simon at Overdrive can show indicative structures across 80+ lenders. Request an obligation-free quote. It is a soft check that will not affect your credit score.
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