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Paying the balloon payment

balloon payment

Do I have to make the balloon payment?

It depends on the type of agreement you’ve entered into. In a Lease Purchase (LP) agreement, for example, a balloon payment is an integral part of the deal and has to be paid.

If you’ve opted for a Personal Contract Purchase (PCP), however, then a balloon payment certainly isn’t necessary. PCP deals are popular due to the options buyers have at the end of them; they usually consist of these three:

Returning the car to the finance company

If you choose to do this, you won’t become the legal owner of the car and therefore don’t have to make a balloon payment.

Part exchange

The part-exchange amount achieved would be used to pay off the remaining finance balance (including the balloon payment). If there is a shortfall then this would still need to be paid – or returning the car to the finance company may be the best option.

Paying for the car upfront

In order to become the owner of the car at the end of your agreement, the chances are your lender will want you to make the balloon payment. You might be able to get your lender to agree to split the balloon payment into monthly payments, but this depends upon how willing the individual lender is to do this.

How is a balloon payment calculated?

A balloon payment is worked out based on how much the vehicle is worth at the end of the agreement. Your lender will factor in how much the car will depreciate in value over the course of the agreement, and then make the balloon payment at the end of the agreement respective to the value of the car.

When will I know how much the balloon payment is?

You’ll be aware of the amount of the balloon payment when the loan is issued, so don’t worry about getting to the end of your agreement and having a massive lump sum you weren’t expecting thrown at you.

The benefit of this is that you know where you stand from the start of the process, and can either save during the course of your agreement to afford the balloon payment at the end or, if you’re happy to hand the car back, not worry about it.

How do I deal with an outstanding Balloon payment?

Red Potato can help you by refinancing your Balloon payment, allowing you to make monthly payments to satisfy the owed amount.

We can help in most circumstances, even if the finance was not originally with ourselves.

Please follow the link below, provide some basic information and we will let you know how we could help.

This website is operated by Premium Plan Limited. Red Potato is a trading name of Premium Plan Limited, which is registered in England with Company No 05977118. Registered office: Kempton House, Kempton Way, PO Box 9562, Grantham, Lincolnshire, NG31 0EA. Premium Plan Limited is authorised and regulated by the Financial Conduct Authority (FRN: 742272). The Red Potato name and logo are trademarks of Totemic Limited. Premium Plan Limited is a member of the Finance & Leasing Association (FLA).