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There are many types of Asset Finance, and a Balloon Loan may be a solution to consider if you need to keep costs down in the early stages of repayment.
A Balloon Loan is not paid off in full by the regular monthly repayments and therefore has a balance due at maturity. The final payment is called a balloon payment because of its size, which can be much larger than the other payments.
The balloon payment means that you can keep the monthly repayments to a minimum because you are only paying off part of the sum borrowed. At the end of the term, you can make the balloon payment and the asset becomes yours.
If you need to reduce the cost of a new asset, but are confident that you will have sufficient funds to make the balloon payment, it can be an effective way to reduce initial costs.
Balloon Loans are a common way to buy vehicles. They allow you to have the use of a new car or van at a lower cost than a full repayment loan. Many people then avoid the balloon payment altogether by part-exchanging the vehicle back to the dealer, and starting again with a new vehicle and a new Balloon Loan.
The dealer will cover the costs by selling the used vehicle, while the borrower can always have a new and reliable vehicle to work with. This can be a way to reduce your overall costs, but there is a risk. Remember that, unlike other finance plans such as Contract Hire, there is no guarantee that your vehicle will have sufficient residual value to cover the outstanding amount.
If you have not paid off a sufficient proportion, or if used vehicle values fall, you could return the vehicle and still owe money.
Balloon Loans are not restricted to vehicles - they can reduce the cost of acquiring many other kinds of asset, from a toolkit to an entire factory and from a forklift to a bulldozer. It can cover medical equipment, a kitchen for a chip shop or an aircraft.
So if you have a growing business, want low payments now and feel confident you could make a large payment in future, they could provide the answer to any major asset purchase. Tools and machinery that will help your business do more, and IT systems that can drive efficiency can both be made to fit your budget more easily with a Balloon Loan.
At Rangewell, our team includes Asset Finance experts. They can help you find the right kind of finance arrangement, the lenders who work in your sector, and the most competitive deals.
If you need Balloon Finance, we will work with you to see the actual figures, and help you decide if a deferred payment will provide the solution your business needs.
If arranged properly a Balloon Finance deal could help cut the costs of the vehicles and equipment your business needs.
To get an expert view on whether it might be right for your business, please call us at Rangewell. Whether you're looking at Balloon Finance, general Vehicle Finance, or even more specific ULEZ Vehicle Finance, we can help you source the most appropriate and affordable funding for your business.
Find balloon finance to allow a vet to buy a digital X-ray system - allowing her to launch her practice
Source agreements for machinery from various suppliers to set up a complete production line with a single balloon payment deal
Set up HP for a truck with a substantial balloon payment for a company in a Creditors Voluntary Agreement
Find balloon funding for vehicles that undercuts the 0% deals offered by dealers
Arrange Balloon finance for a fleet of limousines, allowing an operator to take on a prestige contract
Our goal is very simple - to help businesses find the right type of finance as quickly, transparently and painlessly as possible.
Have a question?
If you don’t want to keep the vehicle, you can return it instead of paying the balloon payment and there’ll be nothing more to pay. You can start again with a new vehicle and a new finance agreement. If you want to keep the vehicle, you’ll need to pay the balloon payment..
If you want to keep the vehicle and can't pay the balloon payment you may be able to arrange another loan to pay off the balloon.
Some HP vehicle agreements have a large ‘balloon’ payment at the end. The balloon payment means the regular monthly payments will be much lower. For example, £10,000 over 4 years (excluding interest) is 48 monthly payments of £208.32. But the same amount with a balloon payment might be 47 payment of £170.32 and a final payment of £2,000.
What happens at the end of your Finance Lease agreement depends on the type you have. With some you simply give back the vehicle. Others let you sell the vehicle, and retain the proceeds. Others will allow you to continue leasing the vehicle at a reduced cost.
