What Happens if I Can’t Pay My Balloon Payment?

Woman stood by her car refinancing her balloon payment on a mobile phone

Buying a new car is exciting. Whether you’re looking for a family-friendly drive, or a two-seater sports car, finding a new set of wheels can be fun.

However, a car is also likely to be expensive. In fact, after a house, a car is probably the second highest expense you’ll ever face. Car finance gives you the option of breaking down that expense into manageable chunks.

There are plenty of different types of car finance agreements available. With our wide range of lenders, you are sure to find one that accommodates your needs and circumstances – even if you have a poor credit score.

This article will break down what a balloon payment is, as well as what happens and your possible options if you can’t afford to pay it.

What is a balloon payment?

In order to understand what happens if you can’t pay a balloon payment, it’s worth outlining what these are. You can also check out our guide to how balloon payments work for more detail.

In car finance terms, a balloon payment is a one-off lump sum plus an option to purchase and possible admin fees, that you owe at the end of your agreement if you wish to own the car.

Not all car finance agreements have a balloon payment. For both Personal Contract Purchase (PCP) and lease agreements, you’ll face a balloon payment at the agreement’s end. Because you’re making this final balloon payment, you’ll benefit from lower monthly repayments during the term of your agreement. By making this payment at the end of a PCP agreement, you’ll own the car outright. On the other hand, it simply makes monthly payments lower for a lease agreement with no option to own the car.

A balloon payment is optional with PCP, but not optional with a lease agreement. If you don’t want to own the car at the end of your PCP agreement, you can hand it back or choose another finance agreement with the same lender as long as the vehicle is in good condition, in line with the contract terms and within the agreed mileage.

What happens if you can’t pay your balloon payment?

There are a number of eventualities if you can’t afford your balloon payment.

Late fees or penalties

In some instances, you may face late fees or penalties by the lender. These are additional charges on top of what you owe for the balloon payment.

Default and repossession

If you don’t confirm to your lender what end-of-deal option you want, they may automatically try to take the payment. If you don’t have the available money, you may therefore end up defaulting on the finance agreement.

There are any number of steps that a lender can take if you default on a loan. Your account may be sent to a debt collection agency to try and recover outstanding payments. This will have consequences for your credit score and future loan viability.

Alternatively, the lender may try to initiate repossession of your vehicle. This essentially means they reclaim the vehicle as collateral for the debt. This also has consequences for your credit score.

Legal action

In more extreme instances, you may face legal action, which could lead to a court judgment against you. Depending on the court order, the lender may be allowed to seize collateral to make up for the debt. Alternatively, you may be subject to wage garnishment, where an employer is required to deduct money from your salary until your debt is paid off.

Impact on credit score

In any of the above instances, your credit score will suffer. Defaulting on your car finance agreement and experiencing repossession will negatively impact your credit rating. A lower score then reduces your future loan viability, making it harder to obtain agreements. You’ll also likely face higher interest rates and less appealing terms for any future loans.

What to do if you can’t afford your balloon payment

If you can’t afford your balloon payment, you have some options.

Refinance your balloon payment

My Car Credit offers balloon payment finance. This works like any other finance agreement. You’ll break down the lump sum of the balloon into manageable monthly repayments.

We can help individuals with all credit profiles, using our large panel of lenders to find an agreement that’s right for you.

Negotiate with the lender

If you think you can’t afford your balloon payment, contact your lender sooner rather than later. You may be able to renegotiate the terms of the loan, benefiting from an extension or refinancing the balloon payment.

Hand back the vehicle

With PCP car finance, you don’t have to make the final balloon payment. You can hand the vehicle back at the end of the agreement as long as the vehicle is in good condition, in line with the contract terms and within the agreed mileage.

However, this isn’t suitable for those who need their car on a daily basis. Plus, you’ll have to shop around for a new finance deal for your next set of wheels. By making the balloon payment, you’ll own the car outright, and can use it as you please.

Sell or trade the vehicle in

Depending on your circumstances and the agreement, you may be able to either trade in or sell your vehicle if you can’t afford the balloon.

Remember that you’ll only be able to do so if its market value is enough to cover the outstanding balance on your loan.

Discuss balloon payment refinancing with My Car Credit

You have options if you can’t pay your balloon payment.

At My Car Credit, we work with individuals with all credit profiles to help them find the right balloon payment refinancing. Use our online calculator to get an instant, no-obligation quote for your expected monthly payments, rate of interest, and total payable amount. Please note that should you progress, some lenders may perform a hard search on your credit file.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!

Balloon Payments Explained: What, Why & How

Black Tesla driving down the road bought with a Balloon Payment

Car finance has lots of confusing jargon – and a balloon payment is one example. Consider this article your ultimate guide to the what, why and how of balloon payments.

What is a balloon payment?

There are many different kinds of car finance available, depending on your needs.

Certain agreements allow you to make a final lump sum (the balloon payment) at their end. Once you’ve paid this one-time lump sum, along with an option to buy purchase and possible admin fees, the car belongs to you.

How does a balloon payment work?

A balloon payment works as a one-off lump sum you can pay at the end of your car finance agreement if you want to own your car.

With PCP, the one-off balloon payment is optional. You don’t have to pay it if you want to hand the car back or opt for a new finance agreement on another car.

The balloon payment is calculated based on the expected depreciation of your car (also known as the Guaranteed Minimum Future Value). It’s a fixed cost, meaning that no matter how much the value of your car fluctuates, it won’t rise.

Why choose car finance with a balloon payment?

There’s more than one type of car finance that allows you to own the car outright at the end of your agreement. With HP (hire purchase), you can own the car without making a final balloon payment (although there’s usually some admin fees to pay).

With that in mind, why would you want to choose car finance with a balloon payment?

HP finance has many benefits. However, because you’re not paying a final balloon fee, you’ll make higher monthly repayments compared to a PCP agreement.

A car finance option with a balloon payment is, therefore, a better choice for you if you want lower monthly repayments and if you regularly update your wheels.

What happens if I can’t afford my balloon payment?

If you’re keen to own your car outright at the termination of your finance agreement but can’t afford the balloon payment, don’t panic.

At My Car Credit, we understand that not all drivers have the cash for their balloon payment. That’s why we have balloon payment finance. With this agreement, you’ll break down your final balloon payment into manageable monthly instalments.

Apply with balloon payment finance with My Car Credit

No matter your circumstances, you can check if you are eligible for car finance with our handy online calculator. Our initial credit check is only a soft search, too – meaning it won’t impact your credit profile! Please note however that should you progress, some lenders may perform a hard search on your credit file.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!

How Do Balloon Payments Work?

Red and black cars bought using a Balloon payment

One of the many benefits of car finance is its flexibility. The range of car finance agreements means you’re guaranteed to find one that works for your unique needs and circumstances.

With that said, this range of options may make your decision feel overwhelming – and that’s not to mention the jargon involved in any choice!

This article will break down what a balloon payment is, how they work, and whether they’re right for you. By demystifying one of the more confusing terms associated with car finance, we’ll help you to decide whether car finance with a balloon payment is right for you.

What is a balloon payment?

In car finance terms, a balloon payment is a one-off lump sum that you pay to your lender at the end of certain finance agreements.

Both Personal Contract Purchase (PCP) and lease agreements have a final balloon payment that you can make at the agreement’s end. Making this payment means that you’ll own the car outright.

How do balloon payments work?

With both PCP and lease agreements, you’ll face a balloon payment at the agreement’s end (plus an option to purchase fee and possible admin fees).

Be aware that with PCP, a balloon payment is optional – you don’t have to pay it. You can choose to hand the car back to the lender or opt for a new finance agreement on another car. With a lease agreement, a balloon payment is not optional.

The amount you’ll pay for your balloon payment is calculated according to your lender’s estimation of your car’s depreciation. This is known by many names – the ‘Guaranteed Future Value’ (GFV), ‘Guaranteed Minimum Future Value’ (GMFV) and ‘Residual Value’ (RV). We’ll call it by the GMFV here.

The GMFV predicts the value of your car at the end of your finance agreement. Your lender will estimate this based on factors including the vehicle make and model, yearly mileage estimates, and the length of your agreement.

The GMFV (the balloon payment) is a fixed cost that’s written into your car finance contract. It can’t fluctuate based on your car’s actual value.

As such, even if your car is worth less at the end of your agreement than the GMFV estimation through no fault of your own, you don’t have to pay to make up the difference. Alternatively, if your car is worth more, you can find yourself in positive equity. This allows you to either make the final payment and sell the vehicle on for a profit – or put that equity towards another car finance agreement with the same lender.

What are the benefits of car finance with a balloon payment?

Don’t forget to check out our guide to the eight advantages and disadvantages of a balloon payment for a more comprehensive breakdown of their pros and cons.

Lower monthly payments

Compared to car finance agreements like Hire Purchase (HP), car finance with a final balloon payment has lower monthly payments.

You get to own your vehicle

If you love your vehicle and want to keep it, you can! Otherwise, you have two options available to you. You could part-exchange the vehicle for a newer, more modern vehicle, or simply hand the keys back, as long as the vehicle is in good condition, in line with the contract terms and within the agreed mileage.

What are the drawbacks of car finance with a balloon payment?

Usage restrictions

Car finance agreements like PCP do have vehicular usage restrictions. These may include a yearly mileage limit, and you’ll pay extra if you incur excessive damage.

These restrictions are established because of your lender’s prediction of your car’s GMFV. If you breach these restrictions, you can impact this estimation, and will be penalised.

Payment shock

A car finance agreement with a balloon payment means you’ll pay lower monthly instalments. However, this can mean that the balloon payment is expensive, and you may find yourself experiencing payment shock.

If you do find yourself in this position, you can benefit from balloon payment finance.

Not ideal for those with lower credit ratings

At My Car Credit, we understand that not all drivers have exceptional credit scores, and thanks to our wide range of lenders, we can accommodate all kinds of credit profiles.

If your credit score is less than ideal, you’re less likely to qualify for car finance with a balloon payment. Therefore an agreement without a balloon may be more suitable.

What happens if you can’t afford your balloon payment?

There can be any number of reasons why you may find yourself unable to pay your finance agreement’s final balloon payment.

My Car Credit understands that not all drivers may have the cash upfront to be able to make your balloon payment. Balloon payment finance provides one solution, working just like a car finance agreement. By breaking down the balloon payment’s lump sum into manageable monthly repayments, you have better budgetary control.

Use our online calculator to receive an instant no-obligation decision on balloon payment finance. Our initial credit check won’t impact your score, and we’ll leverage our large panel of lenders to find a deal that’s best for you. Please note that should you progress, some lenders may perform a hard search on your credit file.

Is a balloon payment right for me?

Car finance agreements with a balloon payment have various advantages. From lower monthly repayments to a guarantee of your vehicle’s future value, having an agreement with a balloon payment can be beneficial. Plus, with PCP finance, you don’t have to make the final lump sum – you can enter another finance agreement on a different car with the same lender. This is great for people who like to regularly update their wheels.

With that said, if you’ll struggle with usage limits or are prone to damaging your car, you may need to consider your options. Plus, you’ll have to evaluate your financial situation. Plan ahead to ensure that you can make the final balloon payment or consider balloon payment finance to avoid facing payment shock.

Wondering if you are eligible for My Car Credit car finance?

Do the maths on your next car with our handy online calculator and discover how My Car Credit can help you find the right car finance.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!

8 Advantages and Disadvantages of a Balloon Payment

Shiny car bought using a balloon payment

How do you know if a car finance agreement with a balloon payment is right for you? The first step is to understand the advantages and disadvantages of a balloon payment. Read on as we look at 4 advantages and 4 potential disadvantages.

What is a balloon payment?

A balloon payment is the one-off lump sum, plus an option to purchase and possible admin fees, that you can pay at the end of certain car finance agreements like PCP. By making this payment, you’ll own the car outright.

Balloon payments aren’t obligatory with PCP – at the end of your finance agreement, you can always hand the car back, or choose another finance agreement on a different car.

Any balloon payment is calculated on the expected depreciation of your car (also known as the Guaranteed Minimum Future Value or Residual Value).

The GMFV or RV predicts what the car will be worth at the end of an agreement, based on your usage estimates. The factors that will impact its value include the make and model of the car, your yearly mileage estimates, and the length of your finance agreement.

The GMFV or RV is a fixed cost – it won’t fluctuate based on your car’s value.

Advantages of a balloon payment

Lower monthly repayments

Other car finance agreements like Hire Purchase (HP) give you the option of owning the vehicle at the agreement’s end.

However, with HP, you don’t pay a final balloon payment. As such, you’ll face higher monthly repayments than you would with a car finance agreement that has a final balloon payment.

Fixed cost

A balloon payment is calculated based on your lender’s estimation of depreciation in your car’s value – the Guaranteed Minimum Future Value or Residual Value. This is a fixed cost – it won’t fluctuate throughout your car finance agreement, even if your car’s value changes.

Sometimes, finance companies may get your car’s value (its GMFV or RV) wrong. It can depreciate in value more than expected, meaning you’re in negative equity.

However, the balloon payment is a fixed cost. As such, if you find yourself in negative equity through no fault of your own (not breaching usage restrictions), you still won’t face any additional fees.

Potential for positive equity

Your car’s value may depreciate less than was predicted.

If your lender undervalues your car’s GMFV or RV, you could, therefore, find yourself in positive equity. This means that you find yourself at the end of an agreement with a vehicle that’s worth more than your finance company estimated.

You can then choose to make the final balloon payment and sell the car on for a profit. Alternatively, if you stay with the same finance company, you can put this positive equity towards the deposit on a new vehicle.

You get to own your vehicle!

If you love your car and want to keep it, you can! Otherwise you have two further options available to you. You could part-exchange the vehicle for a newer or different model or simply hand the keys back, as long as the vehicle is in good condition, in line with the contract terms and within the agreed mileage.

Disadvantages of a balloon payment

Usage restrictions

Car finance with a final balloon payment typically requires usage restrictions. You may be expected to keep under a certain mileage, and you are expected to return the car in good condition at the agreement’s end.

If you go over these usage restrictions, you’ll be penalised. This is because your lender will base your car’s depreciation value on these usage restrictions. Breaching them will impact the accuracy of this value, which can have financial ramifications.

Not ideal for those with lower credit scores

If your credit score is less than ideal, you’re unlikely to qualify for car finance agreements with a balloon payment.

Therefore an agreement without a balloon may be more suitable if your credit rating is low.

Not optional for lease agreements

With PCP, the balloon payment is optional. However, this payment isn’t optional with a lease purchase agreement – you’ll have to pay the final lump sum.

Expensive final payment

The balloon payment can be a hefty sum. You may not have access to the cash needed to make this payment.

However, you can choose to refinance your balloon payment in this instance.

How do I refinance my balloon payment?

With balloon payment finance, you’re refinancing your balloon payment. This allows you to break down the lump sum into affordable monthly payments. You’ll also have an extended loan time, and you may be able to access better interest rates.

Wondering if you are eligible for My Car Credit car finance? Do the maths on your next car with our handy online calculator.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!

What is a Balloon Payment on a Car Loan?

Cars at a dealership

The car loan industry has its fair share of jargon, and as a prospective buyer, it’s important to understand the lingo. “Balloon payment” is one of the most common terms you’ll encounter when shopping for loans, which is why we’ve dedicated an entire article to it.

Read on to find out more about the definition of a balloon payment on a car loan, what to expect and how to get the best deals on vehicle finance.

What is a balloon payment on a car loan?

The concept of a balloon payment on a car is relatively simple. It’s a final instalment, paid to the lender in a lump sum at the end of your loan. The balloon payment is usually larger than other previous payments and is designed to ensure the lender isn’t out of pocket.

Balloon payment car loans are offered on two types of finance agreements – Personal Contract Purchase (PCP) and Lease Purchase. We take a closer look at each below:

PCP balloon payment

PCP loans are one of the most popular ways for Brits to get behind the wheel of a new car. Most contracts span for three to five years and require monthly payments. At the end of the contract, you’re offered the option of making a final balloon payment to purchase the car outright. Also called an Optional Final Payment, this final instalment gives you full ownership of the car.

How a PCP balloon payment works

  • At the beginning of your loan, the lender calculates the balloon payment based on the Guaranteed Future Value (GFV). This is the predicted resale value of the car at the end of the agreement. The balloon payment is designed to cover the remaining value of the GFV.
  • The GFV doesn’t change over the life of your contract, regardless of whether the value of the car fluctuates.
  • After making your final balloon payment, you take legal ownership of the car.  

Think a PCP loan could be the right solution for you? Fast and easy to use, our car loan approval calculator is a great way to get the ball rolling and find out how far your budget can take you.

Lease Purchase (LP) balloon payment

LP agreements give you the option to pay a percentage of your loan at the end of the contract. This figure is called the balloon payment and unlike PCP loans, it’s not optional. Over the lifetime of the agreement, you’ll need to set aside cash to pay off the balloon payment. Once the balloon payment has been made, you take on full ownership of the vehicle.

How an LP balloon payment works

  • At the start of the contract, you and the lender agree on a set amount to defer. For example, a car may cost £16,000 and you choose to defer £4000.
  • The remaining £12,000 is paid over the next four years, in monthly payments.
  • After making your final monthly instalment, you top up your balance with the balloon payment of £4000. This gives you legal ownership of the vehicle.

The benefits of a balloon payment on a car

Lower monthly repayments

Opting to make a balloon payment at the end of your contract is a great way to unlock lower monthly repayments. You’re essentially deferring a percentage of the total cost until the end of your finance agreement. This brings down your monthly repayments and can make it easier to incorporate a car loan into your budget.

Stretch your budget further

 For many motorists, balloon payments are a great way to stretch the budget further. Instead of settling for a less-than-ideal vehicle, a balloon payment allows you to defer part of the cost and secure the keys to your dream car. With a responsible attitude towards finance, there’s plenty of time to save for your balloon payment.

Do all car loan contracts include a balloon payment?

No, not all contracts include a balloon payment. Options like Hire Purchase (HP) agreements incorporate the total cost into your monthly repayments. This means there’s no need to make a balloon payment at the end of your contract.

Can I refinance a balloon payment car?

We get it. Things come up and despite the best intentions, it’s not always possible to cover your balloon payment at the end of your contract. If you find yourself in this situation, it is possible to refinance a balloon payment car. Agreements usually take on a Hire Purchase model and spread the cost of your balloon payment across several months or years. At the end of the contract, you become the legal owner of the vehicle.

It’s worth noting that before opting to refinance a balloon payment, you should consider the current value of the vehicle compared to the cost you’ll have to absorb to keep it. If the vehicle is worth less than the balloon payment, it’s generally best to return it and purchase a similar second-hand car for less. Similarly, if the car is worth more than the balloon payment, it’s worth refinancing and committing to full ownership.

If you think refinancing your balloon payment could be a good option, the first step is to reach out to your lender. It’s also worth getting in touch with our team to discuss refinance options. Our panel includes plenty of lenders willing to offer balloon payment finance plans designed to help you stay behind the wheel.

Find out more about balloon payments

Want to know more about balloon payment car instalments and the different types of loans available to you? Send us an email or give us a call on 01246 458 810 to chat to an experienced team member. We’re here to help, so don’t hold back when it comes to questions and queries.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!

How to Refinance a PCP Balloon Payment

car bought on pcp finance with balloons in back

There’s no doubt that COVID-19 has affected all of our lives. For many of us, finances are tighter, and we must watch the pennies, now more than ever. As a motorist, you may be coming to the end of a PCP deal and cannot afford to buy a new car in the current climate. You also don’t want to lose out on a car you’ve been waiting years to finally purchase outright. Perhaps you have also grown attached to the vehicle and don’t want to hand the keys over at the end of the PCP agreement.

If this is the case, consider your PCP finance balloon payment. My Car Credit can help you with refinancing your balloon payment, leaving you free to keep driving your car with a new agreement in place.

 What is a PCP?

A PCP (Personal Contract Purchase) is a very common way of purchasing a new or nearly new car. Unlike a traditional personal loan or HP (Hire Purchase) agreement, you won’t be paying off the full value of the vehicle, and you won’t own the car at the end of the finance agreement – unless you choose to.

At the end of the term, you can either pay a final lump sum balloon payment to keep the car, hand the car back and walk away, or get a new car with a brand new agreement.

What is a PCP balloon payment?

A PCP finance balloon payment is the final lump sum needed to take ownership of a car at the end of an agreement. Most car finance paperwork refers to this as the optional final payment. When you first take out the loan, the vehicle costs are split across an initial deposit, a series of monthly payments and then this optional final payment if you choose to buy the car.

The balloon payment is fixed at the beginning of the contract, so you should be aware of the cost of buying the vehicle before you get to the end of the deal. The balloon payment is an estimate of the vehicle’s value at the end of the finance agreement, and it offers protection against an unexpected decline in your car’s value. It is also known as your car’s guaranteed minimum future value.

Should you refinance a balloon payment?

The current COVID-19 pandemic may have influenced your decision on whether to keep or buy your vehicle. Perhaps you’re a key worker and need a vehicle to rely on every day. Or maybe you’ve lost work and are looking for smart ways to save more money.

It is worth bearing in mind that due to the current difficulties in changing vehicles, some lenders are offering an extension to your current agreement.

However, if you want to keep the car, you would need to make the balloon payment. This is possible by paying the lender in cash or by refinancing the payment, which usually takes the form of a Hire Purchase agreement and will leave you as the car’s owner at the end.

Before making a final decision on whether to hand your car back or refinance the balloon payment, it’s important to consider your car’s current value with how much you’d have to pay – or refinance – to keep it. A good rule of thumb is if the car is worth less than the balloon payment, you may want to give it back and purchase a similar used model for less.

However, if the vehicle is worth more than the balloon payment listed on your agreement, you are better off paying – or financing – this amount to own the car for less than what a similar model would have cost you.

How do I refinance a PCP balloon payment?

If you want to keep the vehicle but cannot afford to pay the full optional final payment in cash, talk to My Car Credit about balloon refinancing. We have a number of lenders on our panel who offer balloon finance, so long as it is the right option for your circumstances.

Balloon payment finance is a Hire Purchase agreement. You can finance cars up to 10 years old or 100,000 miles at the start of the contract. Keep in mind that this will mean that you won’t own the car outright until you’ve made the final payment. However, if you refinance, you can settle your agreement at any point during the agreement.

There’s no doubt, this is an accessible and affordable way to spread the cost of car ownership. Best of all, at the end of the term, often between 24 and 60 months, the car becomes yours!

Another option for refinancing is opting for a bank loan. If you have a good credit score, you may be able to take advantage of low-interest rates. However, be aware that a personal loan does not have the same consumer protection rights as a hire purchase agreement. You may find you’re able to get a better deal with car finance, so it’s worth getting Hire Purchase quotes, too. My Car Credit offers rates from as low as 6.9% APR and will give you an instant online decision along with your expected rate of interest.

Get started today

Have you been thinking about purchasing your car at the end of your PCP agreement for a while? If you’ve been waiting years to finally own the car, don’t miss out! You don’t have to wait until the end of your PCP agreement before talking to your lender about refinancing. You may even be able to reduce your monthly payments by refinancing early.

• Start by applying for finance. Our dedicated car credit advisors will work with you according to your chosen financial plan and goals. We’re always on hand to help and are happy to guide you through the process.

• Calculate your budget. Get an idea of how much you can afford to spend.

• Let the team at My Car Credit handle the rest. We can help you land the right refinancing option that suits your needs and budget.

Find a financial plan to suit you

At My Car Credit, we understand that it’s a troubling time for everyone. That’s why our dedicated agents work to secure the right plan to suit your needs, vehicle and budget. To get expert advice and guidance, call us on 01246 458 810 or email us at enquiries@mycarcredit.co.uk. We look forward to hearing from you.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!