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Car Finance and Balloon Payments in the UK
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| Guest post by: Al Shea |
Article Overview: How does car finance in the UK work when a balloon payment is involved? What is a balloon payment and how can it help me when buying a car for my business on finance?
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Car Finance and Balloon Payments in the UK
Not many business people buy their cars outright, most people lease them from various funders or vehicle providers such as the main dealerships. You generally buy your car on finance over a 2 or 3 year term and pay for it monthly. At the end of the lease you normally either give the car back to the funder or you can make a final payment and own the car, this is called a balloon payment.
The purpose of the balloon payment is to help reduce the monthly payments you need to make during the agreement. Bascially, if you buy a new car for £40,000 and put it over a 3 year finance deal, you really don't want to pay off the full £40,000 in just 3 years because the chances are you'll sell it on at the second hand market value, say £20,000. The balloon payment is the residual value that the funder puts on the vehicle based on how many miles you think you'll drive over that period - the second hand value ie £20,000. By putting this balloon payment at the end you can either sell it (to cover the final payment) or make that final payment from your own funds. The benefit of doing this is that the monthly payments are only based on the car value minus the balloon payment, rather than the full amount, therefore reducing your monthly payments quite dramatically and opening up a wider range of vehicles to you.
The other option is contract hire, which doesn't involve any balloon payments because you are hiring the vehicle for a contracted period of time, you simply return it at the end. The monthly payments are based on how many miles you do per year and what the funder feels the car will be worth at the end of the lease term.
Article Tags: balloon payment, balloon payments, car finance, finance car
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About the Author: Al Shea RSS for Al's articles - Visit Al's website Al Shea started out as a Business Finance Broker in 2002, helping UK businesses source finance for their equipment and asset requirements. Since then he has also gone on to create the popular Consumer Finance website - http://www.HonestJohnny.co.uk - which covers all the latest loans, insurance, credit card, investment, and pension deals currently available in the UK. The website also covers business finance and gives you direct access to Al's existing UK funding lines offering flexible asset finance for your UK business. For a quote go to http://www.HonestJohnny.co.uk/businessfinance Click here to visit Al's website Financing a Subway Franchise in the United Kingdom Software Finance for Businesses in the UK Should You Get a Business Loan or a Credit Card The important factors to consider when choosing a commercial finance broker asset finance broker in the UK How an underwriter will look at your business accounts to establish if you are creditworthy for UK asset finance |
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