What is a balloon payment on a car?
A balloon payment is a large, final payment made to the lender at the end of a car finance agreement. They are typically found in a lease or Personal Contract Purchase (PCP) finance and the amount is calculated at the start of the agreement. Those with a balloon payment option usually result in lower monthly repayments.
How do balloon payments work?
The balloon payment is calculated based on the Guaranteed Future Value (GFV) which is the estimated value of the car at the end of the contract. It is usually a percentage of the car’s value or the loan amount. Commonly, it can range from 20% to 50% of the car’s purchase price.
