A balloon payment, also known as a residual, is a great feature to include with your loan as it allows you to enjoy a new car while reducing your monthly repayments.
But if you are nearing the end of your loan, and that balloon payment is about to fall due, the thought of making that lump payment could be keeping you up at night.
A balloon payment is designed to match a cars resale value when it falls due, but if you've fallen in love with your current car, you don't have to sell it to make the payment. Refinancing allows you to deal with the balloon repayment and keep your car.
What is refinancing?
Refinancing is when you organise a new loan to replace the one you currently hold. You can refinance to pay off your balloon (or residual) payment over a period of time, rather than in one lump sum. You can also refinance your original loan to get a better interest rate, to change financiers or refinance to extend the term of your loan so you can pay less month-to-month.
Refinancing means no more feeling locked in with a financier who has treated you like a number for the life of your loan, or having to sell your car at the end of your loan just to fund your balloon payment.
What are the two types of refinancing?
People frequently refinance their home loans to make sure they are paying the most competitive prices - so why wouldn't we do the same with our car loans?
There are many reasons why people choose to refinance their loan:
- To pay off their balloon payment over a longer period of time instead of making a single lump payment, known as End-of-Loan refinancing.
When you come to the end of your finance contract, and have your balloon payment owing, there are three general options for you:
1. Trade your car in to pay off your balloon and find a new vehicle
2. Sell your car privately to pay off your balloon payment
3. Pay out your balloon payment with your own cash and own your car outright
Many people choose the option of a balloon payment when first applying for their loan to keep their month-to-month repayments down, with the idea of using one of the three options above to pay it off once their contract comes to an end.
But what if you don't want to sell your car, but can't afford to pay the balloon payment outright?
This is why stratton offer End-of-Loan refinancing.
By offering End-of-Loan refinancing, stratton allow you to keep the car you've purchased, without the headache of wondering where the lump balloon payment money is going to come from.
Less commonly, people refinance to pay less on monthly repayments, get a better interest rate, or because of customer service issues. This is known as Mid-Term refinancing.
Whilst not as common, stratton can refinance your loan mid-term to ensure you are getting the best rate to suit your needs.
With interest rates constantly changing, and your priorities changing in your life, it always pays to make sure you are paying the best monthly rate.
You can refinance at any time during your loan time, up until six months before your loan is due to end.
You may choose to refinance to capitalise on a better interest rate, to reduce your monthly payments, to include a balloon payment for the end of your loan, or to alter the length of your loan.
To qualify for mid-term refinancing, you must still be in a strong financial position, have not missed any of your payments on your loan, and have a valid reason for refinancing.
Sleep Better Tonight
Refinancing a commercial loan is quick and easy, with no inspection of paperwork required! If you have a consumer loan, your stratton consultant can help you the whole way.