When To Use Balloon Loans

When To Use Balloon Loans



When to​ Use Balloon Loans
If you​ are looking for a​ loan that allows you​ to​ borrow a​ large amount of​ money over a​ short amount of​ time but with low monthly payments,​ then you​ should consider getting a​ balloon loan .​
Balloon loans can be used to​ reduce your monthly payments whilst still borrowing the​ amount of​ money you​ require .​
If you​ want to​ know what balloon loans are and when you​ should use them,​ then this article can help you​ to​ learn more.
What are balloon loans?
Balloon loans are basically loans that are agreed for one term,​ but are calculated over another term .​
For example,​ you​ might take out a​ five-year balloon loan,​ but it​ is​ calculated over 15 years .​
This means the​ monthly payments are going to​ be very low .​
However,​ at​ the​ end of​ the​ five-year term,​ you​ need to​ pay off the​ final balance in​ one large ‘balloon’ payment .​
Lower payments
The main advantage of​ a​ balloon loan is​ that for the​ loan term you​ get extremely low monthly payments .​
If you​ are looking to​ borrow a​ large amount of​ money but cannot afford large monthly payments,​ then a​ balloon loan might be a​ good idea .​
With a​ balloon loan you​ can borrow large amounts of​ money with the​ advantage of​ low monthly payments,​ yet you​ don’t have the​ extra costs of​ interest on​ a​ loan that lasts 10 or​ 15 years.
Affording the​ balloon
Although lower payments are a​ great idea,​ you​ need to​ remember about the​ balloon payment at​ the​ end of​ the​ loan .​
If you​ borrow a​ large amount of​ money,​ you​ will likely have to​ pay a​ hefty amount at​ the​ end of​ the​ term .​
Although it​ might seem enticing now to​ have low payments,​ it​ might be very different when you​ owe £5,​000 or​ more in​ one payment .​
Think carefully before applying for a​ balloon loan about your ability to​ afford such a​ large final payment.
Who should consider balloon loans?
Balloon loans are good for people who know their income or​ monetary situation will greatly improve within the​ next few years .​
If you​ cannot afford large payments right now but know that in​ 2 or​ 3 years you​ will have a​ lot more money,​ then a​ balloon loan could work well for you​ .​
However,​ you​ do need to​ be fairly certain that your situation really will improve.
Refinancing
If you​ come to​ the​ end of​ the​ loan term and find that you​ are unable to​ afford the​ balloon payment,​ you​ might be able to​ renegotiate the​ loan terms and pay off the​ rest of​ the​ loan in​ the​ normal way .​
Although terms for this will vary,​ refinancing at​ the​ end of​ a​ balloon loan is​ often possible .​
However,​ this will end up costing you​ more money,​ so if​ you​ are unsure about your ability to​ afford the​ balloon loan go for a​ regular loan instead.




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