Calculate Hire Purchase with Balloon Payment

Is there a Hire Purchase balloon payment just like with Personal Contract Purchase car finance? If you’re planning to finance a car with HP, this article is for you! Let’s dive right in and learn how Hire Purchase car finance works and whether you need to make a balloon payment at the end of your contract to own the car. 

What is Hire Purchase with Balloon Payment?

HP car finance with a balloon payment is much like a regular Hire Purchase deal, however, it includes a final lump sum payment at the end of the agreement called a "balloon payment". This is a good option for you if you prefer to keep the monthly instalment amount low and defer a chunk of the payment when your Hire Purchase contract is nearing completion. HP with balloon payment also offers flexibility because you can decide how long the repayment term will be. Usually, though, most contracts range from 12 to 48 months. 

How Does HP with Balloon Payment Work?

Just like a regular Hire Purchase agreement, you first have to apply for car finance from a trusted lender. Once approved, you can then choose the car you want and determine the repayment term. At this point, you also have to decide on the amount you'll pay as your balloon payment. 

The monthly instalment amount is calculated by subtracting the amount you've put down as a deposit as well as the amount you've set as the balloon payment. With that figure, interest will be added and that will be the amount you have to pay every month throughout the whole duration of your car finance contract. 

Unlike a regular HP deal though, you won't automatically own the car once you're done with the monthly repayments because you still have to pay the balloon payment. Once you've covered that final lump sum payment, the ownership of the vehicle will then be transferred to you and you are free to do what you want with the vehicle. 

Benefits of Balloon Hire Purchase

With this type of car finance, the monthly repayment amount is fixed so you won't have to worry about the fluctuations in the interest rates and you can budget your finances better. Also, since there is a balloon payment, the monthly instalments will be much lower compared to the usual HP car finance repayments. 

As for mileage restrictions, since this type of car finance is still a variation of Hire Purchase, you don't have to think about limits. You can enjoy long drives as much as you want. And when you're done with all the payments, you will be the legal owner of the car. 

Key Points on the Balloon Payment

The balloon payment for this type of HP car finance is different from that of a Personal Contract Purchase deal. With a PCP agreement, the final lump sum payment is completely optional. You may choose not to pay the balloon payment if you'd rather return the vehicle and not own it. 

However, with HP with a balloon payment, paying the final lump sum amount is not at all optional. When you sign this car finance agreement, you've made a commitment to settle the amount at the end of your HP contract. 

How to Calculate HP with Balloon Payment

Hire Purchase car finance with balloon payment consists of your deposit, monthly instalments, and the final balloon payment. The deposit amount is usually up to you. You can pay 10% to 50% of the car's value upfront. As for the HP balloon payment, car finance companies calculate the amount by basing it on the estimated resale value of the car. Once they arrive at a figure, it will then be subtracted from the total monthly instalment amount. Monthly repayments typically last from 12 months to 60 months. 

Of course, there’s an easier way to calculate the balloon payment for a Hire Purchase deal. You simply have to visit the website of the car finance company that offers this type of HP agreement and check if they have a balloon Hire Purchase calculator. There, you only have to enter the amount for your deposit, and preferred repayment term, among other figures. The calculator will do the computations by factoring in the representative APR of the car finance company. 

Do note though that the amount you’ll get from the Hire Purchase calculator with balloon payment is only an estimate. The actual amount is expected to be different because the lender might offer you a lower or higher annual percentage rate for your HP agreement. However, having an estimated amount for the balloon payment is a good way to prepare your budget if you’re to push through with financing a car. 

Is HP with Balloon Payment for Me?

If you prefer to have a more affordable monthly instalment amount so you can save up for the balloon payment at the same time, then this type of Hire Purchase can be a budget-friendly way to finance your dream car. Bear in mind though that, unlike PCP car finance, the balloon payment at the end of your agreement is not optional so you really have to be financially ready to settle the remaining lump sum you owe the car finance company so that you can own the vehicle.