king for a loan that allows you to borrow a large
amount of money over a short amount of time but with low monthly
payments, then you should consider getting a balloon loan.
Balloon loans can be used to reduce your monthly payments
whilst still borrowing the amount of money you require. If you
want to know what balloon loans are and when you should use
them, then this article can help you to learn more.
What are balloon loans?
Balloon loans are basically loans that are agreed for one term,
but are calculated over another term. For example, you might
take out a five-year balloon loan, but it is calculated over 15
years. This means the monthly payments are going to be very low.
However, at the end of the five-year term, you need to pay off
the final balance in one large =EBballoon’ payment.
Lower payments
The main advantage of a balloon loan is that for the loan term
you get extremely low monthly payments. If you are looking to
borrow a large amount of money but cannot afford large monthly
payments, then a balloon loan might be a good idea. With a
balloon loan you can borrow large amounts of money with the
advantage of low monthly payments, yet you don’t have the extra
costs of interest on a loan that lasts 10 or 15 years.
Affording the balloon
Although lower payments are a great idea, you need to remember
about the balloon payment at the end of the loan. If you borrow
a large amount of money, you will likely have to pay a hefty
amount at the end of the term. Although it might seem enticing
now to have low payments, it might be very different when you
owe =A35,000 or more in one payment. Think carefully before
applying for a balloon loan about your ability to afford such a
large final payment.
Who should consider balloon loans?
Balloon loans are good for people who know their income or
monetary situation will greatly improve within the next few
years. If you cannot afford large payments right now but know
that in 2 or 3 years you will have a lot more money, then a
balloon loan could work well for you. However, you do need to
be fairly certain that your situation really will improve.
Refinancing
If you come to the end of the loan term and find that you are
unable to afford the balloon payment, you might be able to
renegotiate the loan terms and pay off the rest of the loan in
the normal way. Although terms for this will vary, refinancing
at the end of a balloon loan is often possible. However, this
will end up costing you more money, so if you are unsure about
your ability to afford the balloon loan go for a regular loan
instead.
About The Author: Peter Kenny is a writer for The Thrifty Scot,
please visit us at http://www.loanwize.co.uk and
http://www.thriftyscot.co.uk/Banking-Savings/claim_back_any_unfair_bank_cha
rges.html
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