Balloon credit – Balloon loan
Often confused with LOA, balloon credit also called LOA balloon is financing backed by a rental but its operation differs slightly.
Balloon credit is a rental contract associated with consumer credit financing, it allows you to rent a vehicle for a period of 12 to 48 months, this is the first notable difference with the LOA and the LLD which offer durations longer, up to 6 years for LOA. The dealer offers a vehicle to the motorist, who will reimburse rent for the chosen duration. Simply, these rents will only consist of credit interest, calculated according to the rate of the loan for the duration of the balloon credit.
Rental also involves paying a contribution
Between 10% and 20% of the amount of the vehicle, this is precisely what is called the balloon.
At the end of the contract, the motorist can:
- Redeem vehicle
- Return the vehicle
- Resell the vehicle
- Extend the contract
Otherwise, the balloon credit is a financing allowing to have lower monthly payments, limited to the interests of the credits, it is thus financially more interesting than the LOA on a short duration but the cost of the credit is generally higher on the balloon loan. Note that the maintenance is the responsibility of the driver, it is therefore necessary to assess the cost difference with an LOA taking into account these elements.
Why choose balloon credit?
The balloon credit is very interesting when the driver has a significant contribution at the start of the rental, it can thus reduce the amount of monthly payments and interest to be paid, this, therefore, applies when the concession takes over a vehicle or when the motorist resells his car on his own. It is also suitable for motorists who do not wish to buy back the car, the LOA being a contract dedicated to becoming an owner with the purchase option, even if the motorist can decide not to exercise this option. Finally, the advantage of balloon credit is to be able to extend the contract, to have more flexible terms than on an LOA, where it will be necessary to set up a new contract.
The choice is mainly made according to the needs of the motorist and his budget, we must think about the type of vehicle, whether or not to become its owner and especially the contribution, which can dissuade many motorists since the contribution is not mandatory in the LOA.
Can we buy a balloon credit?
Considered a classic consumer loan, the balloon loan can, therefore, be bought back in a credit consolidation transaction. It is naturally necessary to have at least two credits to buyback to be able to benefit from this financing, but the interest is to be able to settle the loan and start again on a new contract, either via a balloon credit, or an LOA ( or LLD), or a classic purchase. The principle of redemption of balloon credit is simple, the driver files a request with a specialized service which will be in charge of settling the credits in progress, he will then propose an amount including the amounts due of the credits with a rescheduled repayment duration but also a smaller monthly payment. Note that you can add a sum dedicated to the financing of a new car in a balloon credit buy-back.