Hello Mabs

How does one avoid the balloon payment without paying too much?

Mabs Answers

I get asked this question a lot, and I appreciate it — it shows that consumers are
thinking carefully before making risky financial decisions.

For those who may not know the term, a balloon payment is a chunk of the car’s price, usually 20-40%, that you don’t pay off during the loan term. Instead, it’s deferred to the end of the contract. At the end, you can either trade the car in and start again or pay off the balloon if you want to own it. You can do this by refinancing the balloon or paying it in cash. Until the balloon is settled, the car doesn’t fully belong to you.

The idea behind it is to keep monthly payments low, but this can make the car more
expensive in the long run. If you don’t want to avoid being entangled in the balloon, be honest with yourself and don’t be excited by a car salesperson who tells you that you qualify for much more than you can afford. Avoid being pushed into debt you can’t manage at all costs and be even willing to walk away when a deal is too good to be true. Stick to what you can afford—today’s cars have great tech even in the more affordable options!