Do Hire Purchase Car Loans Have a Balloon Payment?

When exploring hire purchase as a car finance option, you may be wondering if these loans include a balloon payment 🎈

With PCP car finance, a balloon payment is almost always required if you wish to keep the vehicle at the end of your loan. 

However, with most hire purchase agreements, the total cost of the car is included in your monthly repayments and therefore they do not typically include a balloon payment.

That isn’t to say that you can’t find HP car finance with balloon payments. You absolutely can and it could help you to save on your monthly payments.

To help you understand more about balloon payments in HP finance, and how they work, read our useful guide below 👍😀

Got a specific question? Why not jump to:

What is a balloon payment on Hire Purchase agreements?

A balloon payment refers to a large lump sum payment which is deferred to the end of a finance agreement.

It's significantly larger than your regular monthly payments, and it reflects the remaining value of the car at the end of the term.

Traditional hire purchase agreements generally do not include a balloon payment, however some lenders offer this as a means of reducing the size of the initial monthly repayments. This makes it an attractive option for customers who want to own their vehicle at the end of an agreement but want lower monthly repayments.

After the term has been agreed, typically the deposit and balloon payment will be confirmed, which are then deducted from the overall cost to establish your monthly repayments. 

Although Hire Purchase agreements with balloon payments can be offered by lenders, balloon payments are mostly found in other forms of car finance, such as Personal Contract Purchase (PCP).

In a PCP agreement, the balloon payment is an optional payment which you only pay if you decide to own the car outright at the end of the finance term. With a Hire Purchase agreement, the final balloon payment will not be optional. Signing up for a balloon hire purchase agreement means you agree to pay the balloon payment, and will then become the outright owner of the car.

Balloon payments can make higher-value cars more accessible in the short term. However, it means you’ll need to pay a larger lump sum if you choose to keep the car.

Currently Carmoola does not offer hire purchase agreements with a balloon payment. Our hire purchase agreements come with an option to purchase fee of £1 at the end of the loan, at which point you will own the car outright.

More car finance guides

Do you need to have a balloon payment?

Having a balloon payment in a car finance agreement is not a necessity. It's simply an option that comes with specific types of finance plans.

In a traditional hire purchase finance plan, for instance, you typically wouldn't encounter a balloon payment.

The loan is structured so that you pay off the entire value of the car in equal instalments over the term.

This setup is ideal for those who prefer a straightforward approach to car finance.

However, in other financing options like PCP, a balloon payment is a key feature.

Calculating and planning for balloon payments

If your car finance plan includes a balloon payment, it’s crucial to plan and budget for this large sum of cash.

The balloon payment is typically based on the projected residual value of the car at the end of the finance term.

Calculating this amount can be complex. It involves factors like depreciation, the length of your finance term, and the anticipated condition and mileage of the car. 

You can use a car finance calculator to get a general idea of the cost of monthly repayment; however, you’ll need to calculate any balloon payment by getting a quote directly from the lender.

Calculating how much it will cost is crucial in helping you prepare for the future payment.

If you’re worried you may not be able to afford the balloon payment at the end, you can always consider refinancing. This would help to spread the cost of the loan over a more manageable time frame, but could lead to paying higher interest overall.

At Carmoola, all of the hire purchase agreements we offer come with an option to purchase fee of £1 at the end of the agreement, rather than a balloon payment.

For more tailored advice, reach out to our friendly team today.

FAQs About Hire Purchase Loan Balloon Payments:

Is Hire Purchase with a balloon payment a good idea?

Whether a Hire Purchase with a balloon payment is a good idea depends on your financial situation. It can lower monthly payments, but you'll face a large payment at the end of the term. It's suitable if you can manage the final balloon payment.

How does a Hire Purchase agreement work?

In a Hire Purchase Agreement, you pay an initial deposit, followed by fixed monthly payments over an agreed period. At the end of the term, after the final payment and ‘option to purchase’ fee, you become the owner of the car. 

Can I refinance my car loan to avoid balloon payments?

Refinancing your car loan to avoid a balloon payment is possible, depending on your creditworthiness and the terms offered by lenders. Refinancing can spread the balloon payment over a new loan term but always consider the interest rates and total cost before proceeding.