How does Balloon Works in Asset Finance & Car Loans

How does Balloon Works in Asset Finance & Car Loans

During the process of acquiring new vehicles through vehicle financing options like Chattel Mortgage or Commercial Hire Purchase (CHP), the operators often have an option of including a truck loan balloon payment. This is the portion of the original borrowed amount, which is due in full at the end of the loan term i.e. after making the last monthly repayment.

Throughout the vehicle’s ownership period, up to seven years from the original purchase, operators must plan for this important payment. Depending upon its percentage of the original loan amount, the balloon in truck loans can be significant and challenging to pay in a lump sum from available cash reserves.

For operators who desire to keep their vehicles, planning is essential to address the balloon payment. Loan Junction offers a range of financing options at competitive interest rates to help operators manage this final payment. As experts in commercial credit offerings, we work closely with various operators and lenders to find and structure the most workable & best solutions for each customer.

Operators can speak with our team ahead of the balloon payment due date to discuss various available options tailored to their specific needs and their vehicle setup. We provide refinancing options to spread the balloon payment over a new term with competitive interest rates to ensure affordability. We ensure personalized assistance to our esteemed customers to structure the best financing arrangement for them. Keep reading to know in detail about balloon in truck loan.

What is a Truck Loan Balloon?

Truck Loan Balloon relates to Chattel Mortgage and Commercial Hire Purchase (CHP). A similar concept i.e. the residual, applies with leasing but with some alterations. It is basically a percentage of the amount borrowed, often the purchase price of the vehicle, which is set aside for finalizing at the end of the truck loan term.

The percentage is subject to the lender’s approval and can effectively reduce the monthly payments. Operators should choose a percentage that realistically reflects the vehicle’s expected value at the end of the truck loan term, which can be up to seven years from the date of purchase. Otherwise, the amount payable may exceed the value of the vehicle, complicating the plans to refinance the payout.

Paying Out Truck Loan Balloon

As the end of the loan term approaches, operators must consider their options. The first step is to contact the lender to obtain an exact payout figure. Our brokers can handle this process on your behalf if preferred. The amount of interest accrued on the credit over the term will impact the final payout.

Operators are encouraged to begin exploring payout options around a month before the due date. This allows ample time to thoroughly consider each option and make an informed decision.

  • Options include refinancing the amount or paying it in full of existing funds. Considerations should include potential tax benefits from refinancing. Comparing the interest payable on refinancing with any deductions lost if payment is made from cash funds is advisable.
  • If refinancing is chosen, we can secure credit approvals within 24 hours. Thus, even if addressing the payout has been delayed until the last minute, we can provide prompt assistance and fast financing approvals.

Balloon Financing Options

Truck refinancing stands as a favoured choice for finalizing vehicle credit arrangements. Whether opting for the same or a different form of commercial credit—such as CHP, Leasing, Chattel Mortgage, or Rent-to-Buy—operators have various avenues to explore. In cases where the vehicle isn’t accepted as suitable security for these facilities, our Unsecured Business Loan facility becomes an option.

Operators can select the same or a different lender, with our brokers sourcing the most viable offer from our extensive lender panel, aligning with the operator’s requirements.

Given that the vehicle is now 5, 6, or 7 years old (if originally purchased new) or older if purchased second-hand, any new funding arrangement would adhere to approval criteria for used vehicles. Interest rates would be reflective of those applicable to second-hand vehicles at the time of application, not the rates from the initial funding arrangement.

Lenders evaluate factors such as the vehicle’s age, condition, and potential working life when approving term and credit amounts for refinancing payouts. The current valuation of the vehicle becomes crucial for lenders in determining collateral acceptance and preparing credit offers.

Operators can opt for a new balloon with Chattel Mortgage and CHP or a residual with Leasing. The credit term approved is subject to negotiations handled by us on behalf of our customers, streamlining the process and ensuring favourable terms.

Tax Benefits of Refinancing Truck Loan Balloon

Tax benefits associated with the refinanced credit will align with the selected facility and are subject to the Australian Taxation Office (ATO) rulings at the time the credit was arranged. It’s important to note that if the original financing was through Chattel Mortgage or Commercial Hire Purchase, the full amount of GST applicable to the vehicle would have been claimed. Therefore, no further GST would apply to refinancing under these types of facilities.

However, if Leasing or Rent to Own is chosen for refinancing, GST would be applied to the monthly payments, which can be claimed by businesses registered for GST.

Additionally, it’s essential to understand that accelerated asset depreciation measures, such as the Instant Asset Write-off, only apply to assets that are new to the business, not assets being refinanced.

Eligible Businesses and Vehicles for Refinancing Balloon

We cater to all classes/categories of vehicles, including cab-only, cab & trailer, heavy, medium, & light-duty, as well as ready-to-work models. Our truck loan financing solutions are available for various commercial operations, including sole traders, companies, partnerships, and large corporations.

For entities that were new or start-ups at the time of the initial funding, it’s presumed that the operation is now 5, 6, or 7 years old. If no documentation or low documentation was originally used, this type of funding typically wouldn’t be required for refinancing the payout. This could potentially result in better rates and improved credit conditions for refinancing.

Calculating Truck Loan Balloon Refinancing

Truck Finance Calculator to generate estimates, aiding in the decision-making process regarding whether refinancing is a viable option or if making the payout from existing cash flow funds is preferred.

Please note that the rate applicable to used vehicles may differ from the rates currently displayed, which are typically for new vehicles.

For the most accurate assessment and personalized guidance, it’s advisable to speak with one of our brokers. We can handle the refinancing of your vehicle credit final payments efficiently and effectively, ensuring you secure the best possible solution for your needs.

Contact Loan Junction for refinancing truck loan balloon options.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.