When you reach the end of your loan and have made all the repayments, a balloon payment is the final amount that you pay as a lump sum. It’s also known as a residual payment. Not all loans have balloon repayments, so if you have one it will be clearly stated in your car loan contract.
A balloon payment will keep your repayments lower over the course of the loan. But in the end, you’ll have to pay the lump sum with interest which increases the total cost of the loan.
If you choose a balloon payment, it’s important to budget for it in advance. You don’t want to have to take another loan to pay off the lump sum and interest.
Car loans are available without a balloon payment, but keep in mind your repayments will be higher.