February 17, 2025

What You Should Know About Balloon Payments

If you've been exploring car finance options, you might have come across the term balloon payment. It's a popular structure that can make vehicle ownership more affordable month to month - but it also comes with a lump sum payment at the end of the loan term. Before you decide whether it's right for you, it's important to understand how balloon payments work and what to expect down the track.

At AFS, we've been helping Australians get behind the wheel for over 30 years. Balloon payment loans are a useful tool for many of our customers - especially those who want to keep monthly repayments low while managing their overall cash flow. But like any financial product, they need to be considered carefully. Let's walk through what they are, how they work, and whether one could suit your situation.

What Is a Balloon Payment?

A balloon payment is a lump sum that’s due at the end of a vehicle loan. Instead of repaying the full loan amount over the term, you defer a portion until the very end—reducing your monthly repayments in the meantime.

Let’s say you’re buying a $30,000 car over 5 years with a 30% balloon. You’ll make repayments on $21,000 during the term, then pay the remaining $9,000 at the end.

At AFS, we offer balloon payment options across our vehicle loans, helping customers manage their monthly budget while still accessing the car they want. It’s a great option if you have a plan in place for the final payment.

How Balloon Payments Impact Your Monthly Repayments

The main reason borrowers choose a balloon payment loan is simple: lower monthly repayments.

By deferring part of the loan, you’re only repaying a portion of the total borrowed amount during the term. That frees up cash for other expenses, business use, or simply breathing room in your budget.

Just remember—the balloon doesn’t go away. You’ll need to be ready to pay it at the end of your loan. That’s why we work closely with our customers at AFS to ensure they fully understand the structure and are financially prepared for the final step.

What Happens When the Balloon Payment is Due?

When the balloon payment becomes due, you typically have three options:

Pay it outright: If you’ve been saving throughout your loan, you can pay the balloon in full and own the car outright.
Refinance it: If you’re not ready to pay the lump sum, you can apply for another loan to cover it—essentially extending your finance term.
Sell or trade in the vehicle: If your car is worth more than the balloon amount, you can use the proceeds from the sale or trade-in to cover it—and potentially have money left over.

At AFS, we’ll help you explore all these options as your loan matures. We make sure you’re not caught off guard and have a plan that suits your lifestyle.

The Pros of Balloon Payments

There are several advantages to balloon payments, especially for customers looking to ease the pressure on their regular cash flow:

Lower monthly repayments: Defer part of the loan and reduce your day-to-day financial strain.
Greater purchasing power: Afford a better-quality vehicle than you might otherwise have considered.
Flexibility at the end: Choose to refinance, trade in, or pay out the balloon based on your circumstances at the time.

At AFS, we’ve seen how balloon payments can be a great fit for individuals, families, and even small business owners looking for flexibility in their loan structure.

The Cons of Balloon Payments

Of course, it’s important to consider the potential downsides:

Large lump sum: You’ll need to have a plan for the balloon payment when the time comes—whether that’s saving, selling, or refinancing.
Interest over time: Depending on your structure, you may end up paying more interest overall.
Depreciation risk: If your car’s value drops faster than expected, you could owe more than the vehicle is worth at the end of the loan.

We believe in transparency at AFS, and we make sure all our customers understand these risks upfront. That way, you can make an informed decision with confidence.

Is a Balloon Loan Right for You?

Here are a few key questions to ask yourself:

Can you realistically save for the final payment over the course of the loan?
Are you planning to keep the vehicle, or would you prefer to sell or trade in when the loan ends?
Are you confident that the vehicle’s value will hold up over time?
Would lower monthly repayments make a real difference to your current budget?

At AFS, we’ll help you consider all of this—plus your long-term goals—to determine whether a balloon loan is the right move.

Final Thoughts

Balloon payments can be a great tool for the right borrower, offering flexibility and lower repayments in the short term. But it’s vital to plan for the balloon amount, understand your options, and make sure it fits with your broader financial goals.

At AFS, we’re here to help you through every stage—from comparing loan structures to planning for the final step. Whether you’re looking to buy new, upgrade, or refinance, we’ll help you find a vehicle finance solution that makes sense for you.

Ready to explore vehicle finance with or without a balloon payment? Talk to AFS today and let’s get you behind the wheel with confidence.