Balloon Payment or Own Outright?
One of the questions I get asked extremely often here at carfianancetalk.com is whether or not to take the finance option which includes a deposit, month to month payment with a large (what is known as) balloon payment at the end or to simply pay a month to month figure to own the car out right at the end of the term (similar to that of a personal loan).
Well, for me personally, I’d always opt for the balloon payment. Purely because of the vehicle deprecation and the fact that you can hand the car back after the 3 or 4 years and trade it in for a newer model. The way this works is simple. You’re pretty much just paying money each month for the amount the car is losing value as you’re driving it rather than paying to purchase the car. Once you’re ready to change your car, you simply hand it back to the garage you bought it from and take another. It’s that simple.
Paying for the car out right means that you’re left with an asset, but the monthly payments will be significantly higher and you’ll be left with a car you have to sell privately when you want a newer model. With both payment models, you’re only really losing the same amount of money so it makes sense to pay the least.