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What are the benefits of a balloon car loan?
I've read that a balloon car loan is a smart move. What are the benefits of it?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
In most cases, you would take out a balloon car loan if you anticipated coming into a substantial sum of money further down the road. This may be in the form of an inheritance or a pay increase. If your financial situation falls under these scenarios, a balloon payment allows you to pay less interest over the life of the loan and pay smaller monthly payments before your final balloon, or lump sum, payment.
But don’t make the mistake of thinking that you’re somehow paying less than you would with a traditional loan. The main takeaway is that you’re simply restructuring how you pay for the loan.
Plus, you should also consider the possibility that you may not inherit money anytime soon or get that promotion at all. Essentially, don’t dig yourself a hole if you don’t have to.
Instead of a balloon loan, you can always take out a traditional car loan. Then, if you come into a sizable amount of money, simply pay off the balance of the loan (provided you have no
prepayment penalties
per the loan agreement).Whatever you decide to do, remember that you’ll need full coverage auto insurance if you’re financing a car purchase. Download
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