What is the Balloon Payment on a Lease?
A balloon payment is a lump sum paid at the end of a lease or loan term, which reduces the monthly payments throughout the lease period. It’s a popular option in Australia for people seeking more affordable monthly repayments, particularly with novated leases or car finance agreements. The balloon payment is designed to cover a portion of the vehicle’s value, which is deferred until the lease’s conclusion.
Here’s how it works: Instead of paying off the entire cost of the vehicle over the lease term, a percentage of the final cost is left as a lump sum – the balloon payment. This means the leaseholder only pays off a portion of the car’s value during the lease term, which leads to lower regular payments. However, when the lease ends, the balloon payment becomes due, and you’ll need to settle it if you wish to keep the car.
Pros and Cons of a Balloon Payment
The key advantage of a balloon payment is the flexibility it offers with lower monthly payments. It’s an attractive choice for those who may not have large sums to put down upfront but prefer smaller, more manageable payments during the lease term.
However, the downside is that you’ll need to plan for the lump sum at the end of the lease. If you can’t pay the balloon amount outright, you may need to refinance or sell the car to cover it. Alternatively, some lease agreements allow you to trade in the vehicle, using its residual value to cover the balloon payment and potentially enter a new lease agreement.
Is a Balloon Payment Right for You?
Whether a balloon payment is the right choice depends on your financial situation and future plans. If you’re looking for more affordable monthly payments and can manage the final lump sum or refinance at the end of the lease, it can be a great option. On the other hand, if you’re not prepared for the larger payment at the end, it may not be suitable.
Take the next step towards flexible financing today! Contact us to explore how a novated lease with a balloon payment can work for you.