A balloon payment car loan is when the borrower takes out a loan where the monthly payments are lower than they would be for a standard auto loan. In exchange for this, the last payment on the loan includes most of the principal.

Balloon payment car loans are a great tool for buyers who will resell the car before the end of the loan payment term. However, for other buyers, balloon payment car loans can be a disaster. The problem comes when the final payment is due. If the buyer does has not secured that large amount of money, he or she will find themselves underwater.

For those who have not secured assets and are operating on fixed income a balloon payment car loan is a gamble that he or she will be able to sell the car before the end of the loan payment term. However, for buyers with a more secure financial situation, these balloon payment loans help manage interest and lead to some substantial savings.

For more information on balloon payment car loans, check out our selection of helpful articles and advice.