Can I Refinance a Balloon Payment?

February 11th, 2022

If you have an equipment loan with a balloon payment, it can creep up on you before you know it. You might find yourself struggling to repay it — If you do, all isn’t lost. Balloon payments can usually be easily refinanced.

Read on to find out everything you need to know about balloon payments and refinancing them.

What is a balloon payment?

A balloon payment is a large, single repayment to pay off your Asset Finance at the end of your loan term (usually between 30 and 50% of your total loan amount). 

The balloon payment amount is usually agreed upon at the start of your loan term, even though it’s not due until the end. Equipment loan terms typically range from 1 to 7 years. This larger lump sum repayment at the end of your loan lowers your regular repayments for the duration of the loan term.

This means that you can usually qualify for a larger loan amount if you include a balloon payment, because your regular repayments are more affordable.

Balloon payment example

Let’s look at an example of how a balloon payment works. Later in this article, we’ll refinance the balloon payment in this example.

Let’s say you have a loan of $25,000 at an interest rate of 7.5%. Your monthly repayments over five years are $397.54, and your balloon payment is $7,500.

If you didn’t have a balloon payment, your monthly repayments to fully pay off the loan over five years would be $500.95 (or, in other words, an extra $103.41 per month).

When your $7,500 balloon payment is due, you have three options:

  1. Make the payment if you can afford it.
  2. Trade your vehicle in to help you make the payment (and if you do, you could take out a new loan for another asset). 
  3. Refinance the $7,500 debt into a new loan.

Refinancing balloon payments

If you get to the end of your loan term and you can’t afford your balloon payment, you can simply refinance it. You can then make regular repayments like you did with your original loan until you pay it off. 

It might make sense for you to refinance at the moment because interest rates are at record lows. You don’t have to refinance with the same lender who approved your initial car loan. A new lender would be happy to arrange the refinancing for you.

    Balloon payment refinancing example

    Let’s look at how the balloon payment in the example earlier in the article could be refinanced.

    If you refinanced the $7,500 balloon payment for two years at an interest rate of 7.5%, your monthly repayments would be $337.50. That’s slightly cheaper than your original monthly loan repayments, so it certainly won’t blow a hole in your budget!

    The bottom line

    If your asset finance is coming to an end and you’re worried about how to pay the balloon, refinancing might be the right option for you. 

    At Earlypay, we consider a huge range of assets for financing that other lenders simply won’t look at. Whether you’re looking at financing a car or some kind of extraordinary equipment, we’re happy to consider it for finance regardless of its age. 

    To chat about whether our solutions could be right for your business, call us on 1300 760 205.

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