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The Pros and Cons of Residual Value Loans

Helpful financial aid or pure Evil?

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Pros of ‘Residual / Balloon’ payment loans

Here follows some of the benefits of financing a car with a Balloon payment:

SHORT TERM AFFORDABILITY (Lower monthly premiums)

Having a Residual Value/Balloon Payment affects the amount of your regular monthly repayments and allows you to pay a much lower instalment during the first few years. Instead of spreading the full vehicle price over a normal finance period like four or five years, you defer a percentage, say 30%, of that lump sum to the end of your finance period.

DRIVING NEW CARS REGULARLY

Balloon payment car loans allows for a car to be sold at the end of the loan term and using the resulting cash to pay off the loan. This way you can re-enter such a deal and drive a new car again. Even though you would never own any equity in a vehicle, you experience the excitement of driving a new car every 3/4 years with the latest safety features and always have a warranty.
If you are very certain that you would be in a better financial position in the future, a balloon payment might be an option for you. Having lower instalments during the loan term allows you to accumulate the cash due to pay off the lump sum at the end.
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