When purchasing a car for business use, buyers have the option of a number of commercial finance products – Chattel Mortgage, Commercial Hire Purchase and Leasing. One of the key features of these business finance products is the option for a balloon or a residual. This is an amount of the vehicle purchase price or total loan amount which is not included in calculating the monthly repayments but is due for payment in full at the end of the loan term. It is usually represented or calculated as a percentage of the purchase price and is fixed at the time of arranging the finance deal. For Chattel Mortgage and Commercial Hire Purchase it is called a balloon amount and for leasing it is called a residual.
Opting for a balloon/residual reduces the monthly repayment amounts. Use our car loans calculator to see how the balloon/residual reduces the estimated monthly payments. This feature is not offered on personal car loans, it is only available for business car finance.
Setting the Balloon/Residual
While it may be tempting to set a very large balloon so you have much lower monthly repayments, there are considerations! Some lenders may have requirements in regard to the amount of the balloon which may be determined by the age/condition of the car and the loan term. In regard to a residual with car leasing, the amount is set by the ATO and is based on the lease term and the age of the car.
When arranging your car finance, your Jade Car Loans consultant will work towards structuring your loan to suit your individual business requirements. However, it is always advisable to consult with your accountant re your finance objectives.
If you would like lower monthly repayments to ease cash flow pressures then opting for a larger balloon will allow this. If you prefer to pay off more of the loan faster with higher monthly payments, then opting for a lower balloon will achieve this objective.
When setting a balloon, be mindful of the projected value of the car at the end of the loan term otherwise you will owe more than the car is worth when paying out the balloon.
Payment Due Schedule
The balloon/residual is deferred for payment at the end of the lease term, after all monthly payments have been finalised. In your finance contract the details of the amount payable and the date due should be itemised.
You may receive a notification from your lender in the lead-up to this due date or you may have to plan ahead to arrange the payout.
When establishing the direct debit for your monthly loan payments, the balloon/residual is usually not included on the direct debit, subject to individual requirements.
If you trade-in or sell the car prior to the end of the loan term, contact your lender to request a ‘pay-out’ figure. This will include the balloon/residual and any outstanding monthly payments and any fees and charges.
Paying Out Options
If you choose to trade-in the car at the end of the loan term but before you pay the balloon/residual, you should advise the car dealer of the amount that is outstanding on the car. They can then factor that in when offering you a trade-in price. If you choose to trade-in, the dealer usually may pay out the balloon/residual in the sales process in changing-over to the new car.
If you choose to sell the car outright, you will need to finalise the balloon/residual with the lender prior to transferring ownership and registration to the new owner.
You may choose to use your cash resources to pay-out the balloon/residual direct to the lender when it is use. Alternatively, Jade Car Loans offers a number of finance options you may like to consider:-
Refinance With a New Car Loan
Speak with your Jade consultant about setting up a new motor vehicle finance deal for the amount of the balloon/residual. This will involve the same process as establishing the initial loan. You have the choice of commercial finance products – Leasing, Chattel Mortgage or CHP.
Your consultant will source you a quote at our current low interest rates.
Some lenders have minimum amounts for financing car loans. Your Jade consultant will source a lender that does finance that amount or will offer you another of our options.
If your balloon is below lender minimums for car finance or for some other reason a secured finance through a commercial car finance product is not achievable, discuss the option of a Secured or Unsecured Business Loan with your consultant.
This type of business finance is structured by your Jade consultant at our low interest rates and with repayments to suit your requirements.
If commercial vehicle finance or business loan do not meet your requirements, another option that Jade can possibly offer you is an overdraft facility. You Jade consultant may be able to arrange an overdraft either with your existing bank or through one of our non-bank lenders. If the balloon/residual is relatively low and you anticipate you will be in a position to clear it in a relatively short time, this may be a more workable solution.
Jade Car Loans provides a wide range of financial solutions for the purchase of business vehicles and your Jade consultant is ready to assist you.
To discuss finance for a balloon or residual, speak with a Jade Car Loans consultant 1300 000 003.
DISCLAIMER: ALL INFORMATION PRESENTED IN THESE ARTICLES IS FOR GENERAL INFORMATIONAL PURPOSES AND BUSINESSES AND INDIVIDUALS SHOULD SEEK INDEPENDENT FINANCIAL ADVICE IN REGARD TO THEIR OWN FINANCIAL DECISIONS AND CIRCUMSTANCES. DETAILS ON GOVERNMENT MEASURES, POLICIES AND GUIDELINES AND VEHICLE DETAILS AND SPECS HAVE BEEN SOURCED FROM PUBLICLY AVAILABLE WEBSITES AND SOURCES. LIABILITY IS NOT ACCEPTED FOR ERRORS IN INTERPRETATION OR PRESENTATION OF ANY FACTS AND DETAILS FROM THIRD PARTIES. WE ADVISE INDIVIDUALS TO CHECK DETAILS DIRECTLY AT THE THIRD PARTY SOURCE IF REQUIRED.