Question 1

How does a balloon loan work?

Accepted Answer

A balloon loan lets you make lower monthly payments during the term whilst postponing a large final payment. This final 'balloon' amount is due at the end of the agreement and is usually based on the expected value of the car. This balloon payment calculator helps you understand the monthly cost and final settlement amount.

Question 2

Is a balloon payment the same as a PCP GMFV?

Accepted Answer

They work similarly. A balloon payment is a lump sum due at the end of the loan, whilst PCP (Personal Contract Purchase) uses a GMFV (Guaranteed Minimum Future Value). Both reduce monthly payments but require a final settlement if you want to keep the vehicle. This calculator works for both types of UK car finance.

Question 3

How is the monthly payment calculated on a balloon loan?

Accepted Answer

Monthly payments are based on the financed amount (vehicle price minus deposit and balloon), the interest rate, and the loan term. The balloon amount is excluded from amortisation until the final payment. Use this calculator to see exactly how your monthly payment is calculated.

Question 4

What happens at the end of a balloon loan?

Accepted Answer

You can usually pay the balloon amount to keep the car, refinance the balloon through another loan, or sell or part-exchange the vehicle to cover the balloon. Your exact options depend on your UK lender or dealer agreement.

Question 5

Is a balloon loan cheaper than a normal car loan?

Accepted Answer

Balloon loans offer lower monthly payments, but the total cost of finance can be similar or higher because the balloon does not reduce until the end. They are best for UK drivers who want flexibility or plan to change cars frequently. Compare both options using this calculator.

Balloon Loan Calculator

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