Did you ever try sucking in the helium from one of those balloons as a kid? Hopefully you didn’t do that very often, because apparently that stuff is pretty bad for you. Anyway, residual balloon payments are kind of like that helium balloon – after a while, as you keep breathing in that toxic, voice-altering crap, the balloon decreases in size. The same goes for a residual balloon payment, except you’re not required to breathe in helium and there are no unhealthy side effects!
What is the residual balloon payment?
The balloon payment is the amount of money that you owe after your novated lease or car loan has ended. It’s calculated as a percentage of the finance amount required to purchase the car.
How much will my balloon payment work out to be?
The amount of the balloon payment depends on two things:
- Lease duration: the longer the lease, the smaller your balloon payment will be
- The value of the car at lease end
Residual amounts also need to be paid with post-tax dollars. If you’re leasing your ride, then this means that funds within your novated lease account can’t be put towards the residual.
Longer lease and smaller balloon payment
The longer your lease runs for, the smaller your balloon payment will be. This is because you’ll have paid more throughout the lifetime of the loan.
Benefits of the balloon payment
The primary benefit of having the balloon payment is the fact that your monthly repayments will be lower during the lifetime of the loan or lease. This has a range of bonuses for you, including better cash-flow, increased manageability of repayments, maximum loan size and more coinciding better with the (presumed) depreciation of your vehicle over time.
Why it’s important to consider the resale value of your vehicle
You want the balloon payment at the end of the lease or loan to be less than the resale value of your vehicle. Otherwise, you’re going to be paying a lump sum that is more than the actual worth of the car. Always make sure you consider this before taking out a loan on a car, and chat with your car finance team about this. Being informed is always the best way to prevent situations like this from happening, even if it seems like a fair deal at first glance.
See? Residual balloon payments aren’t that scary or confusing. When you chat to our team at Fingo, they even become simple! We partner with some of Australia’s leading car financiers who can help you score the best possible car loan or novated lease. With connections to over 2,000 dealerships nationwide, we make sure that every one of our customers gets the best deal on whichever make and model they’re looking for.
Get in touch with our team for a chat today.