Balloon/residual finance

What are the benefits of a balloon/residual?
The main reason people chose to have a residual is because it'll reduce the amount of money you'll be spending each month on that particular loan.
Having a balloon/residual increases the affordability of the loan, making the application more plausible on paper. It will also assist with the borrower's cash flow, and allow the borrower to borrow more money at a lower interest rate.
What happens when a Residual Value/Balloon Payment falls due?
When a borrower choses to add a residual/balloon to their loan, the residual/balloon must be paid as a single lump payment when the loan duration comes to an end, although there are a couple of options available (listed below).
%u2022 The balloon/residual may be "rolled over" this allows the borrower to start a new loan, and in turn payout the balloon as if it was a separate loan. Or if they'd like to keep the current vehicle they can pay the residual/balloon and finalise the loan by paying it out.
%u2022 If the borrower wishes to swap trucks, they may sell the current vehicle and use the funds to payout the outstanding balloon/residual. The borrower can then purchase a replacement vehicle and if desired apply for a new truck loan to fund the replacement. If the borrower wishes to trade the vehicle in to say a car yard, they could structure the loan so that the new vehicle loan will include the balloon/residual of the previous.
Minimum and maximum Residual Value/Balloon Payment guidelines
There are different minimum and maximum Residual Value/Balloon Payment guidelines for leases compared to other car finance options. These guidelines are spelled out below.
There are many different minimum and maximum guidelines for leases compared to other truck finance options. These are listed bellow:
%u2022 The Australian Tax Office (ATO) imposes a set of minimum Residual Value/Balloon Payment guidelines which must be strictly followed on all leases. The ATO minimums are listed below:

Lease Contract Term Minimum Residual Value
/ Balloon Payment
12 Months 65.63%
24 Months 56.25%
36 Months 46.88%
48 Months 37.50%
60 Months 28.13%

The maximum and minimum Balloon Payments will vary depending on the finance company, age of vehicle, how long the loan is, and the credit history of the borrower.

Other types of Truck Finance:
There are a couple of other options when it comes to financing a truck; these include Consumer Car Loans, Hire Purchase, Chattel Mortgage, and Personal Loans. With all of these types of loans finding the best option for you may be difficult, and stressful. It may save you a lot of hassle if you contacted a finance broker who is accredited with numerous different lenders.
Residual Values/Balloon Payments and Resale Value
There are many aspects to consider when choosing to place a residual/balloon in your loan, one of the majors is the expected value of your truck at the conclusion of your loan.
Ideally the residual/balloon should be greater or equivalent to the value of the vehicle when it is time to payout the residual. Ensuring you do this will make sure that at the end you're left with a clean an up to date credit file with nothing owing on that particular loan. Or better yet a deposit to put towards your next truck or loan.
The best way to determine the value of your vehicle at the end of the loan is to estimate how many km's you think you'll be travelling during the loan term. If it exceeds the estimated travel of an average person of 15,000-20,000 kilometers annually then the balloon/residual should be adjusted accordingly. It also applies if you travel shorter distances, if you rarely drive then the vehicle/truck will retain its value better.
Rounding things up:
I have written this article to help consumers understand some of the many choices they have when searching for the "suitable" truck loan. Different finance companies will have their own way of going about finding a suitable loan for their client, but I believe not all the work should be left up to them, question them and do your research to ensure you get the best deal by you. If you'd like more information, with no obligations feel free to contact us free of charge.