what is balloon payment on a car

A balloon payment on a car is a final, lump sum payment that is larger than the payments that came before it, due at the end of a loans term. It is a type of car financing arrangement where the borrower makes smaller monthly payments over the life of the loan, and then pays a lump sum at the end of the loan term. The balloon payment amount can be as much as half of the cars value. Balloon payment loans allow the borrower to pay part of the cost of a car, along with interest on the total price, during the loan term. Balloon payment loans can make sense if you’re looking for a lower monthly payment and have a plan for how you will handle the large balloon payment at the end of the loan. However, if you can’t afford the balloon payment at the end of your car loan, you have a few options but none of them are ideal. You can try to sell your car to apply the proceeds to the balance that you owe. If you’re looking to buy a new or used car from the same dealer, they might allow you to return or trade in your car and apply the proceeds.