Balloon credit: what you need to know?

 

 

But why balloon? This is what is called the amount requested when the car is bought by the dealer. Balloon credit is a car loan for borrowers who always want to have a recent car.

The similarities to the loan in fine or installment

The similarities to the loan in fine or installment

The balloon credit is similar to LOA (rental with purchase option) and LLD (long-term rental): this method of financing is accompanied by a vehicle buy-back agreement, fixing its buy-back price at the end of the contract. The reimbursements of a balloon credit are made over periods of 12 to 48 months (or even 60 months). The contract provides for all closing clauses

  • – the value remaining due at the end of the contract at rate (example: 40 or 45% of the sale price of the vehicle);
  • – maximum mileage and the price of excess kilometers;
  • – the maintenance procedures (assumed by the user within the framework of the balloon credit);
  • – the interest rate fixing the amount of the monthly payments.

Unlike a repayable loan, the borrower only pays the loan interest with a balloon credit. The remaining capital due will be reimbursed at the conclusion of the current contract.

Change car with balloon credit

Change car with balloon credit

When the balloon credit loan contract expires, it is possible to:

  • – sell the vehicle yourself;
  • – return it to the concessionaire;
  • – pay the purchase option;
  • – renew the lease for a period of one to two years.

When the borrower returns the vehicle to the dealer, it is up to the borrower to settle the outstanding capital. Then, you can take out another balloon loan, or change the formula and opt for LOA, LLD or self-depreciable credit.

Points to watch out for balloon credit

Points to watch out for balloon credit

With a balloon credit, you benefit from low monthly payments and the opportunity to be able to change your car frequently, without worrying about resale. But the personal contribution (about 15% of the price of the vehicle) is definitively lost. In the event that the user of a balloon loan wants to return to more conventional financing, he will not have the financial value from the sale of his car.