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What Are Balloon Auto Loans?

Balloon auto loans are a type of auto loan that offer you money to buy a car but you do not need to put down payment. This is a very attractive offer since you can save the money you would have used for the down payment and use it to invest or on other important things. Balloon car loans are however not a good thing for you if you are financially irresponsible. With all balloon car loans, the greatest payment comes at the end of the lease period. This period can last between four to seven years.

Balloon auto loans work like lease agreements except that at the end pf the lease period you are supposed to make a full repayment or to refinance for another term. It is possible that the new amount you refinance may have a higher interest rate because the car is older. Of course this can be a somewhat depressing factor but if you are smart you will invest the down payment to avoid this.

Balloon auto loans are a good way to get yourself a car that you normally wouldn’t be able to buy with an ordinary auto loan. Because balloon loans have no down payments, the prudent car buyer can invest that money and the interest earned can be used to pay for the car or held with the principal to make the final payment.

The most attractive thing about balloon auto loans is the low monthly payments. The largest portion of the loan is saved until the end of the lease period. This means that the payments are affordable over the four to seven years.

Balloon auto loans are not advisable unless you are highly disciplined in your repayments. Before you consider taking a car balloon loan, think of the final payment you will have to make and how much mileage the car will have used up. It is important that the buyer plans the final repayment of the loan with a lot of care.

A car buyer looking to get a balloon auto loan should first consider all other options before choosing the balloon car loan. There are various types of car loans that are cheaper than auto balloon loans, for example home equity lines of credit which are more borrower-friendly and are guaranteed against the value of your home. You can get more details from financial experts and institutions on the best type of auto loan to apply for. Nevertheless, if you feel you are able to pay the balloon car loan responsibly then go ahead and apply.

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