Balloon Payment Car Finance

Lawdavgds on 26/02/2022 - 21:02

Hello all,

I'm interested to know what would happen IF I could not meet a final balloon payment. I have searched and all I can see are results about my options if I cannot afford the balloon. What I am curious about is what actually happens if I don't make said payment.

Lets say 2 months out they send me a letter asking me what I wish to do (which I had once before years ago with out other car - I traded out in that instance). Anyway lets say I do not respond.

Then time passes and the due date arrives. The finance company I assume expects their final $10,000.

So lets say I have $7,500 of that $10,000 and lets say I needed 3 more months to make up that $2,500.

So I guess how long can I string out the payment ? I assume at some point (maybe 30 days ?) I am in default. If I leave $2,500 due they are chasing me for $2,500 at that point? But if I didn't care about a default listing and keeping the finance company at bay until I raised the last $2,500 was more the goal then how long could I potentially do that?

I suppose it would be all about me buying myself time but from the finance company's position what are they likely to do and how fast is my real question ?

This is simply a curious question, this is not an advice question and I am not in this position (I have 3 years left on my auto finance actually). I just would like to know has it happened to anyone and what did they do ?

Automotive

Comments

  • Hybroid on 26/02/2022 - 21:08
    +1

    A) Surrender vehicle you owe money on

    B) Get another loan to pay off the balloon payment

    C) Negotiate extension to loan (usually increased interest rate)

    D) Refinance car loan with same company (not all accept this)

    E) Sell the car to pay off the balloon payment

    You should not purchase vehicles with finance, particularly with high balloon payments.

    In terms of what physically happens if you don't make the payment, read your contract or ask the finance company to advise. Different companies may do different things.

    • awdavgds on 01/03/2022 - 12:16

      Thanks - I guess my contract doesn't state it as I don't have a balloon, perhaps balloon contracts might have it stated. Thus the hypothetical question. I am a curious person.

  • apsilon on 26/02/2022 - 21:10

    I've never had to deal with it but in theory, car finance is typically secured against the vehicle so they could take it and sell it to recover the debt then give you what's left over if anything. I'd imagine they wouldn't be very motivated to get the best price, just cover their own bottom line. Of course it'd get worse if the sale of the vehicle didn't cover the debt.

    In reality though, for a small amount like $2500 in your example they'd probably work out a payment plan with you.

  • Euphemistic on 26/02/2022 - 21:44

    This is one additional reason I avoided a lease some years ago. I don’t know what’s going to happen in X years, so I’ll not risk having to find a balloon payment.

    If you don’t/can’t pay, your contract will determine what penalties you will incur - and the businesses that run the lease will have spent lots on contract lawyers to make sure you don’t win.

  • AndyC1 on 26/02/2022 - 21:50
    +3

    Repossession of the vehicle will occur.

  • Jimothy Wongingtons on 26/02/2022 - 22:13
    +3

    Dang, did you sign up with the finance team of South East Auto Sales too ?

    • bloom on 27/02/2022 - 06:46
      +2

      I make all my repayments in person with their finance team

      • yellowfever on 27/02/2022 - 07:30
        +1

        Did you opt for the weekly or fortnightly extra replayments?

  • avoidfullprice on 26/02/2022 - 22:30

    I have searched…

    As two people said above, your contract will tell you.

    But the real question you're asking is will your method work, and hope one person has done it.

    Good luck.

    • awdavgds on 01/03/2022 - 12:18

      Thanks….its not a real scenario - just curious. I don;t have a balloon on my current loan.

  • outlander on 26/02/2022 - 22:54

    There will no doubt be some sort of penalty for not meeting it on time, so that by the time you save up the 2500 it will have ballooned to 4 or 5 thousand.
    But read your contract. It will tell you for sure

    • awdavgds on 01/03/2022 - 12:19

      Thanks - my loan contract doesn't cover this as I don't have a balloon on my loan. This was a purely hypothetical question. I cannot find any policy wording on the internet that covers a scenario I suggested.

  • SydStrand on 27/02/2022 - 01:30

    Another victim of Southeast Auto Sales.

    I just would like to know has it happened to anyone and what did they do ?

    Refer to Franklin's opening mission in GTA V, or the Emilio Estevez classic: Repo Man.

  • garetz on 27/02/2022 - 03:34
    -1

    Balloon payments can be considered predatory lending practices, especially if you didn't know what you were getting yourself in to.

    Might want to get in contact with a solicitor and have the contract explained to you, which you should usually do before signing anything.

    In your situation more than likely they would repossess the car, sell it off, put the price they got towards the balloon payment then come after you for the remainder of the debt plus additional costs and fees.

  • gargdada on 27/02/2022 - 05:45

    NOT A FINANCIAL ADVISE.. but in case "Hypothetical Person - HP" is in a pinch and know he can payback just need some extra time.
    1 - in current scenario they can ask for extention and should be able to get it declaring covid losses
    2 - if they do not have bad credit then apply for a credit card that gives balance transfer or 0% cash withdrawl.. balance transfer can get you a few months and cash withdrawl can get you atleast 45 days. CC ROI is very high so this only works for people who can manage there finances.

    lastly anyone who buys a car on ballon payment IMO is unable to make sound financial decisions.

    • awdavgds on 01/03/2022 - 12:23
      +1

      On regards to your last point about anyone buying a ar on balloon payment…..thats a little ignorant in my opinion. There are many varied reasons why someone would balloon a payment. My first van was on that basis…I was starting my business and had X amount I could afford per week, knowing quite well that in 3 years time the business would have grown. It did grow as expected and final balloon was made on time and the lower monthly payments helped in that regard. So, I'd call that a very successful and sounf financial decision!

      • gargdada on 01/03/2022 - 16:10

        thanks.. re-reading it. I think my words sounded harsher than they were meant to me.. never considered the business point of view.. and what you did was definitely a good idea.. I personally know people who have taken "luxury cars" on ballon payments not completely understanding how it works.. ended up paying more as ballon than the selling price of the car..

        I'll rephrase it to "who buys a personal car " philosophy is you should stretch your legs only to the length of your blanket.
        But thanks for a different point of view :-)

  • awdavgds on 27/02/2022 - 20:08

    Ok thanks! My past cars have had Balloons because we were always taught in business cash flow is important. This car I have now has no balloon but was curious none the less. Same as I was curious about the opposite….what would happen in a scenario if say I had a balance of $15,000 owing and a year to go on my loan whereby at the end of a year I would leave have a balloon of $10,000 but I decided tomorrow to pay $7,000 onto my loan leaving a balance of $8,000 but a year to go on the loan. Would the finance company ask me to settle the loan because I dipped below the balloon amount ?

    • gargdada on 01/03/2022 - 16:14

      depends on your financer.. some financers fine you for paying more than EMI. Some fix the amount of total interest you'll pay them (without defaulting) irrespective of extra payments made. This trick is mostly but not limited to car dealers.

Login or Join to leave a comment
Login Join