When people choose to finance their cars, they have their own reasons as to what type of financing they choose. And one of those financing options is balloon payments. These types of payments are ideal for people who cannot afford to put down large down payments on cars or commit to normal repayment amounts each month. While it might sound good in the beginning, you always need to remember that at some point in your life, you will need to repay the remainder once your loan comes to an end.
If your loan comes to an end and you cannot afford to pay back the remaining amount or want to sell your car to make up the cash to pay back to your lender, you need to think about refinancing your car. The way this works is that you re-apply for finance on the leftover amount, meaning you don’t need to worry about covering the entire outstanding amount upfront. If “refinancing” on your balloon payment for the vehicle you’d purchased is something you want to consider, here’s some information. Put simply, refinancing is just a way to pay for your existing loan with your lender. It needs to be done in advance, as you cannot assume you will be granted a new loan from your existing lender.
When you re-apply for finance, you will go through an application process where the lender will assess you. How and when you pay your monthly instalments will affect your application and put your at a disadvantage if your payment habits are poor, so always try to pay on time and without having to be reminded to do so. Because the refinance value is far lower than what it was when you began your journey of paying off your first balloon payment, you will be able to experience low-interest rates and, of course, a lower monthly repayment value.
Refinancing is an opportunity to continue payment on your existing vehicle for less, allowing you to save the money you were paying in the meantime for other expenses in your life. However, as much as refinancing is a good financial opportunity for you, you need to know what mistakes to avoid to make it a successful experience with your lender.
Here are a few of the most important mistakes to avoid:
Stretching out your new repayment value
Since you’re refinancing your car, you’re likely to already have been paying for your vehicle for a couple of years by now. So, with your new loan, it is recommended that you try to pay for your car in the shortest amount of time. Do not stretch out your payments to make them less, as this is only going to mean more interest. Of course, if you absolutely cannot do a 48-month loan, you will need to settle for a longer loan period, but if possible, try to cover the remainder of your fixed amount as quickly as possible. Another concern with stretched out loan payments is that the amount you end up paying in the long haul amounts to much more than the car’s value. This is an unsettling thought for many people, so if you can solve it, speed up your repayment process so that you can, officially, own the car you drive.
Leaving your refinancing application too late
When you’re borrowing money from people, you need to dance to their beat. You might forget about applying on time for your new loan, but you need to respect your lender. This can result in penalties, and depending on how old your car is, your lender might refuse to refinance older vehicles. The older the car is, and the more “used” it is, the more your interest rates could be. So, depending on who you choose to refinance with, talk to them in advance.
Try not to miss your payments
Much like any account you have with a financial services provider, you should not miss any payments. Missed payments look bad on your credit rating, and lenders are reluctant to offer you financing because of this. If you struggle to pay, rather set up a debit order to ensure the money leaves your account when it needs to.
Start preparing yourself
If you’re ready and have gathered all the relevant information you need to apply for finance on the remaining amount, try to apply in advance so that you have time to collect any other documents that might be outstanding during your second application process. If you have any questions on how to pay for the balloon payment beforehand, speak to your lender on the available balloon payment options to iron out any loopholes with your new commitment.