Car Loans Australia :: Articles
SHARE

Share this article!

Balloon Payment Loans: 6 steps to make the loan profitable

Balloon Payment Loans: 6 steps to make the loan profitable

Did you know that you can reduce the monthly payments on a loan to half of what they should be by using a balloon payment? Handled correctly, structuring your loan to include a Balloon Payment will increase your bottom line.
Mishandled, a Balloon Payment can cause real headaches.
Here are 6 steps to keep it smart.

What is a balloon payment?

You take out a loan for goods or equipment. Your monthly loan payment is half of what they should because the last payment of the loan is  a large portion of the total loan, called a balloon payment.

  • You want to buy goods or equipment and loan  finance the purchase. 
  • You are quoted a monthly loan repayment and it seems high to you. 
  • Business Plant & Equipment Finance
    Looking for the best way to finance your business plant & equipment? Well, you need look no further! Simply submit our 2-minute business loan enquiry form ... and we'll help get you qualified for the best rate Plant & Equipment loan available from our national panel of independent business finance brokers. We also have access to the best rates & options for Business Cashflow finance. So, why not give us a go ... no charge, no obligation!
    You are then told the loan repayment can be halved and you can have a balloon payment at the end of the loan.
  • So you enter the loan agreement thinking you are getting what you want, at a very low monthly payment. 
  • Sadly, many  buy balloon loan payments like this and set themselves up for a financial nightmare at the end of the loan or lease.

Here is why.

The loan lease they have signed could be as follows. Value of loan $30,000, 36 months, interest and principle payments on $15,000 and one last payment to completion the loan of $15,000.

Assume that you have worked the goods very hard and they are about three quarters through their life span and have been significantly depreciated.  You check the market and you can buy your goods for $7,000 in the second hand market.

 You have to come up with $15,000 for the last loan payment.  Take the situation that you do not have the $15,000 to make the last loan payment.  You will be confronted by two options

Option One

What is a value of the goods?  $7,000.  You do not have the $15,000 so you take out a $15,000 loan to pay for goods of $7,000?

Option two

You sell the goods at $7,000 and take out a loan to pay the $8,000 off the loan Balloon payment.  Now you are paying for goods you do not own!

How do you avoid these traps?

If you knew someone who was in this situation how would you rate their ability as a business person.  It is amazing how many people get caught up in  having to pick option one or option two.

So how do you avoid getting caught?  It is quite easy.

Step One

Look at the goods that you want to buy.   Now take a same type of goods that were being sold three years ago.

The model may be superseded but try and find out what you would have paid for it then.   There is a value in keeping old catalogues.

Step Two

Look at the second hand market for that model of goods. Divide the goods into three categories.

  • Light use.
  • Medium use.
  • Heavy use

 How much is each category currently selling for today?

 Step Three

Work out what the value the goods have depreciated in the period. If it was sold for $10,000 and is now $5,000 it can be assumed  that it will lose its value by 50% in three years.

The numbers may change but the general % value should not.  It may be that the value rises in which case there would be a benefit to you.

 Step Four

Now look at the goods you want to buy today. Assume that the value of the goods in three years time would be based on past performances.

The price has now fallen in purchasing new goods to $7,000, you then estimate the selling price for them in three years to be  $3,500.

Step Five

In the loan lease agreement  you  pay $7000.   You have a balloon loan payment of $3,500.  Remember this is the final payment of the loan.

You have much lower loan monthly payment  as you are only paying monthly loan payments on the $3500.

At the end of three years you have paid off the $3,500 from your monthly loan repayments, you sell the goods, and pay out the  loan balloon last payment of $3,500

Step Six

You now repeat the process and purchase the latest goods by repeating the same process.

You are getting the goods at a lower loan monthly cost than your competitors and you are always maintaining your competitive edge because you are using the latest technology.

This article is a very high level explanation.  Be sure that you get the correct investment and taxation advice before proceeding.  A Mortgage Broker can introduce you to lenders who can arrange finance for you.

Published:Tuesday, 24th Aug 2021
Author: 150

Share this article:

Business Insurance Renewal Due?
If you are in the process of renewing your business, public liability or professional indemnity insurance ... whether it be a professional, trade, manufacturing or retail business ... we can show you a quick way through the maze of offers and options available on the market. Our Australia-wide broker panel will ensure that you get the best cover for your specific needs - and at the right price to suit your budget.
Could your business use some extra cash?
Whether you need an injection of funds to help tide you over tough times or to provide some much needed working capital during a growth stage, our panel of Business Loan specialists are standing by for your enquiry. Our broker panel will give you access to the best available bank and non-bank lenders with rates often lower than are available direct.

Car Loans Articles

The Essential Guide to Securing Affordable Car Finance in Australia The Essential Guide to Securing Affordable Car Finance in Australia
Finding an affordable car finance option can make the dream of owning a vehicle a tangible reality for many Australians. It’s about understanding the intricacies of the loan market, interest rates, and finding a plan that aligns with your financial prospects and constraints. In a society built on the convenience of mobility, securing a car that meets both your needs and your budget is essential. - read more
Your Car Loan Journey: From Application to Approval Your Car Loan Journey: From Application to Approval
In this article, we are embarking on a guided journey that we believe will help immensely in navigating the intricacies of the car loan process. - read more
Car Loans: Secured vs Unsecured Car Loans: Secured vs Unsecured
Car loans play a pivotal role in empowering individuals to afford their own vehicle, which can be a significant purchase. These loans, structured to fit within one's financial situation, can ease the burden of acquiring a car and assist in achieving personal convenience and mobility. - read more
Navigating Car Finance: How to Choose a Loan That Works for You Navigating Car Finance: How to Choose a Loan That Works for You
Buying a car is a significant financial decision, and for many, it means exploring the world of car finance. In Australia, the options are plentiful, and understanding them is key to making an informed choice. Car finance can seem daunting, with various loan types, interest rates, and repayment plans to consider. But fear not – a clear understanding of these options can steer you towards a deal that complements your financial circumstances. - read more
The Smart Aussie Buyer's Guide to Securing the Best Price on a New Car The Smart Aussie Buyer's Guide to Securing the Best Price on a New Car
There's a unique thrill that comes with purchasing a new car; it's not just about getting from point A to B, but about fulfilling a dream and the freedom of the open road. However, with the excitement comes the need for careful planning and smart decision-making to ensure that your investment pays off in the long term. - read more

Finance News

Australia Gears Up for Comprehensive Financial System Resilience Assessment in 2025 Australia Gears Up for Comprehensive Financial System Resilience Assessment in 2025
27 Mar 2024: .Paige Estritori

The Australian Prudential Regulation Authority (APRA) is positioning itself to inaugurate a widescale diagnostic of the nation's financial heartbeat in the year 2025. This financial health check aims to meticulously analyze the repercussions of unanticipated events on the country's financial stability beyond merely scrutinizing the banking sector. - read more
Climbing Mortgage Arrears Signal Heightened Financial Strain Climbing Mortgage Arrears Signal Heightened Financial Strain
26 Mar 2024: .Paige Estritori

Australian households are navigating a more complex financial landscape as mortgage arrears have climbed to a peak not seen since the outset of the COVID-19 pandemic, according to a new report from Fitch Ratings. The Fitch's Dinkum RMBS index has indicated that, as of the last quarter of 2023, households are falling behind on mortgage payments more frequently, sparking concerns about financial resiliency amid ever-tightening economic conditions. - read more
New Investment Approach for Australian New Homebuyers New Investment Approach for Australian New Homebuyers
25 Mar 2024: .Paige Estritori

Recent statistics have highlighted a notable shift in the strategies Australian first-time homebuyers are using to infiltrate the challenging property market. Analysis of 2023's purchasing trends indicates an emerging investor mentality among new buyers. - read more
Rentvesting Trend: First-Time Buyers on the Property Ladder. Rentvesting Trend: First-Time Buyers on the Property Ladder.
24 Mar 2024: .Paige Estritori

New insights from financial data show an intriguing pattern among Australian first home buyers in the recent year, with investment-savvy superstars choosing to become landlords right from the start. A striking one in five opted to dive into the property market, not for immediate residence but investment potential in 2023, indicating a significant shift in home ownership approaches. - read more
Australia Braces for Economic Shift as Rate Cuts Loom Amidst New Challenges Australia Braces for Economic Shift as Rate Cuts Loom Amidst New Challenges
21 Mar 2024: .Paige Estritori

Rising tensions within various sectors of Australia's economy signal a possible series of interest rate reductions by the Reserve Bank of Australia (RBA). Significant indicators, including increased unemployment rates, forecast a shift in monetary policies possibly leading to a period of lesser rates as experts observe a pre-emptive response to economic stagnation under the current administration. - read more

Need Help Finding a Loan?
Get a free car loan eligibility assessment and compare offers tailored specifically to your circumstances.
Loan Amount:
Postcode:
All finance quotes are provided free (via our secure server) and without obligation.
We respect your privacy.

Knowledgebase
Debt Consolidation:
Debt consolidation usually involves negotiating a new loan to pay other existing loans in order to get more favourable interest rates and terms.