Down payment vs balloon payment – which is the best option for you when renting or buying a car? We have a guide to balloon payment and down payment to help you decide. 

What is Down Payment?

A down payment refers to a percentage of the car’s total purchase price. Down payments for new cars can go as high as 20% of the car’s purchase price, and 10% for used cars. Payment of a large down payment helps to reduce the amount of money that is financed on a car. 

Advantages of a down payment

  • Lower interest rate. You will finance less – this indicates to a financial institution or dealership that you are a “lower-risk” borrower.
  • Lower monthly payments. Putting more down means you will have less left to finance.
  • Improves your loan-to-value ratio. A loan-to-value ratio is a limit to which a person can borrow. Putting a down payment helps you to improve the ratio.
  • Helps you to pay your car’s worth. You could end up paying more without a down payment than the total purchase price. Down payments help you get value for your money. 
  • Improves loan approval. If you are taking out a loan, a down payment can improve your chances of approval, which in turn will make you qualify for better finance terms.

What is a Balloon Payment?

A balloon payment is a large payment that is due at the end of the term of your balloon loan. It is the final payment that is due (or the remaining balance) and although this is often a significant large lump sum, it reduces the monthly fixed payment amount that car owners pay. 

Advantages of a balloon payment

  • Lower monthly payments in exchange for a larger payment at the end of the term.
  • Serves well for those who are just starting a new job as they can pay off the large sum when their income increase.
  • No or low initial payments involved

Which is Better?

There are fundamental distinctions between a down payment and a balloon payment and each has its pros and cons. Choosing a payment type will depend on the car owner’s financial status. Balloon payments may be better for individuals with a good credit score or financial standing, as they can eventually pay off the lump sum. For those looking to save money in the long-term, down payments may be the better choice as it lowers monthly payments while protecting against depreciation. 

We have a down payment and balloon payment options for you on everything from a Nissan Almera to Renault Sandero. If you can’t decide between down payment vs balloon payment, give us a call and we’ll help you out.