Quick Quote
One simple enquiry form gives you fast access to quotes and rate comparisons from Australia's leading and best known debt consolidation specialists.
All quotes are supplied to you free and without any obligation. We respect your privacy.
Knowledgebase
Prepayment Penalty:
A fee charged by a lender if a borrower pays off their loan early.
Debt Consolidation Australia :: Articles

Balloon Payment Loans: 6 steps to make the loan profitable

Balloon Payment Loans: 6 steps to make the loan profitable

Balloon Payment Loans: 6 steps to make the loan profitable
Did you know that you can reduce the monthly payments on a loan to half of what they should be by using a balloon payment? Handled correctly, structuring your loan to include a Balloon Payment will increase your bottom line. Mishandled, a Balloon Payment can cause real headaches. Here are 6 steps to keep it smart.

What is a balloon payment?

You take out a loan for goods or equipment. Your monthly loan payment is half of what they should because the last payment of the loan is  a large portion of the total loan, called a balloon payment.

  • You want to buy goods or equipment and loan  finance the purchase. 
  • You are quoted a monthly loan repayment and it seems high to you. 
  • Business Plant & Equipment Finance
    Image for Business Plant & Equipment FinanceLooking for the best way to finance your business plant & equipment? Well, you need look no further! Simply submit our 2-minute business loan enquiry form ... and we'll help get you qualified for the best rate Plant & Equipment loan available from our national panel of independent business finance brokers. We also have access to the best rates & options for Business Cashflow finance. So, why not give us a go ... no charge, no obligation!
    You are then told the loan repayment can be halved and you can have a balloon payment at the end of the loan.
  • So you enter the loan agreement thinking you are getting what you want, at a very low monthly payment. 
  • Sadly, many  buy balloon loan payments like this and set themselves up for a financial nightmare at the end of the loan or lease.

Here is why.

The loan lease they have signed could be as follows. Value of loan $30,000, 36 months, interest and principle payments on $15,000 and one last payment to completion the loan of $15,000.

Assume that you have worked the goods very hard and they are about three quarters through their life span and have been significantly depreciated.  You check the market and you can buy your goods for $7,000 in the second hand market.

 You have to come up with $15,000 for the last loan payment.  Take the situation that you do not have the $15,000 to make the last loan payment.  You will be confronted by two options

Option One

What is a value of the goods?  $7,000.  You do not have the $15,000 so you take out a $15,000 loan to pay for goods of $7,000?

Option two

You sell the goods at $7,000 and take out a loan to pay the $8,000 off the loan Balloon payment.  Now you are paying for goods you do not own!

How do you avoid these traps?

If you knew someone who was in this situation how would you rate their ability as a business person.  It is amazing how many people get caught up in  having to pick option one or option two.

So how do you avoid getting caught?  It is quite easy.

Step One

Look at the goods that you want to buy.   Now take a same type of goods that were being sold three years ago.

The model may be superseded but try and find out what you would have paid for it then.   There is a value in keeping old catalogues.

Step Two

Look at the second hand market for that model of goods. Divide the goods into three categories.

  • Light use.
  • Medium use.
  • Heavy use

 How much is each category currently selling for today?

 Step Three

Work out what the value the goods have depreciated in the period. If it was sold for $10,000 and is now $5,000 it can be assumed  that it will lose its value by 50% in three years.

The numbers may change but the general % value should not.  It may be that the value rises in which case there would be a benefit to you.

 Step Four

Now look at the goods you want to buy today. Assume that the value of the goods in three years time would be based on past performances.

The price has now fallen in purchasing new goods to $7,000, you then estimate the selling price for them in three years to be  $3,500.

Step Five

In the loan lease agreement  you  pay $7000.   You have a balloon loan payment of $3,500.  Remember this is the final payment of the loan.

You have much lower loan monthly payment  as you are only paying monthly loan payments on the $3500.

At the end of three years you have paid off the $3,500 from your monthly loan repayments, you sell the goods, and pay out the  loan balloon last payment of $3,500

Step Six

You now repeat the process and purchase the latest goods by repeating the same process.

You are getting the goods at a lower loan monthly cost than your competitors and you are always maintaining your competitive edge because you are using the latest technology.

This article is a very high level explanation.  Be sure that you get the correct investment and taxation advice before proceeding.  A Mortgage Broker can introduce you to lenders who can arrange finance for you.

Published: Tuesday, 24th Aug 2021
Author: 150


Finance News

Australian Online Retail Sees Continued Growth in May Amidst Nationwide Spending Surge Australian Online Retail Sees Continued Growth in May Amidst Nationwide Spending Surge
03 Jul 2025: Paige Estritori

Australian online retail sales experienced a modest rise in May, as consumers continued to invest in fashion, games, and toys. According to the latest figures from the National Australia Bank, there was a 0.7% increase in online sales for the month, compared to a 1.1% growth in April. Over the past year, Australians have spent approximately $63 billion on online retail purchases. - read more
Pay Boosts and Policy Changes: A Closer Look at Financial Updates for Australian Workers Pay Boosts and Policy Changes: A Closer Look at Financial Updates for Australian Workers
03 Jul 2025: Paige Estritori

The starting days of the new financial year bring significant changes for Australian workers, particularly those on minimum wage. As of Tuesday, the minimum wage will rise by 3.5 per cent, increasing hourly earnings to $24.95, or $948 weekly. This adjustment also affects award wages and comes as a response to rising living costs, outpacing current inflation rates. - read more
US Dollar Faces Historic Decline Amid Trump’s Tariff Policies US Dollar Faces Historic Decline Amid Trump’s Tariff Policies
03 Jul 2025: Paige Estritori

The US dollar has experienced an unprecedented decline, marking its worst first-half performance since 1973. Concerns surrounding President Donald Trump's tariff policies have intensified, leading to a substantial drop in the value of the world's primary reserve currency. Specifically, the dollar weakened by 10.7% against a basket of major trading partners' currencies in the first six months of the year, reminiscent of Nixon's era when the dollar was untethered from gold. - read more
Auditor Deregistered After Brite Advisers Collapse Auditor Deregistered After Brite Advisers Collapse
30 Jun 2025: Paige Estritori

The Australian Securities and Investments Commission (ASIC) has deregistered auditor David Makowa, previously of DM Advisory Services, due to his role in the downfall of financial advice firm Brite Advisers. This decision follows Makowa's acceptance of a court-enforceable undertaking in which he agreed to surrender his auditor registration permanently, pledging never to re-apply. - read more
US Involvement in Israel-Iran Conflict Sparks Financial Market Concerns US Involvement in Israel-Iran Conflict Sparks Financial Market Concerns
23 Jun 2025: Paige Estritori

The escalating likelihood of the United States engaging militarily in the Israel-Iran conflict has raised alarm among investors, potentially leading to significant market volatility. This concern was highlighted by the global financial advisory firm, deVere Group, as tensions heighten in the Middle East. - read more
Debt Consolidation Articles

Managing Your Credit Card Debt Wisely in Tough Economic Times Managing Your Credit Card Debt Wisely in Tough Economic Times
In light of the current economic challenges facing many Australians, managing credit card debt has become more crucial than ever. With rising living costs and financial uncertainty, accruing debt on high-interest credit cards can quickly escalate from a manageable inconvenience to a stressful financial burden. - read more
Smart Budgeting: Building a Financially Stable Future Smart Budgeting: Building a Financially Stable Future
Many Australians today find themselves navigating the choppy waters of financial instability. The burden of debt weighs heavily, affecting everything from daily stress levels to long-term planning. High interest rates, unexpected expenses, and the seductive ease of credit cards contribute to a culture of borrowing that can lead to a precarious financial situation for many. In this introduction, we explore how smart budgeting is not just about scraping by, but laying the foundations for a financially stable future. - read more
The Ultimate Guide to Managing Personal Debt: Tips and Tricks The Ultimate Guide to Managing Personal Debt: Tips and Tricks
Managing personal debt effectively is crucial for maintaining financial stability. Debt, when left unchecked, can quickly spiral out of control, leading to financial stress and a host of other problems. - read more
Proven Strategies for Australians to Improve Credit Scores Proven Strategies for Australians to Improve Credit Scores
Welcome, readers! We're here to talk about something incredibly important yet often overlooked: improving your credit score. Your credit score is a financial report card used to evaluate your creditworthiness, and it can have a significant impact on your ability to secure loans, mortgages, and even rental agreements. - read more
The Importance of Emergency Funds in Your Monthly Budget The Importance of Emergency Funds in Your Monthly Budget
When it comes to managing your finances, planning for the unexpected is a crucial part of staying on top of your budget. An emergency fund serves as your financial safety net, poised to offer support when unforeseen expenses arise. These funds are specifically set aside to cover unexpected costs, like medical emergencies, car repairs, or urgent home maintenance issues. - read more
Managing Your Credit Card Debt Wisely in Tough Economic Times Managing Your Credit Card Debt Wisely in Tough Economic Times
In light of the current economic challenges facing many Australians, managing credit card debt has become more crucial than ever. With rising living costs and financial uncertainty, accruing debt on high-interest credit cards can quickly escalate from a manageable inconvenience to a stressful financial burden. - read more
How to Craft a Foolproof Financial Strategy for Debt Management How to Craft a Foolproof Financial Strategy for Debt Management
Managing debt is a crucial aspect of maintaining financial well-being, yet it can often feel like a daunting task. Understanding how debt works and its potential impact on your life is the first step toward gaining control of your finances. In this section, we will delve into the intricacies of debt and outline why a solid financial strategy is essential for effective debt management. - read more
Proven Strategies for Australians to Improve Credit Scores Proven Strategies for Australians to Improve Credit Scores
Welcome, readers! We're here to talk about something incredibly important yet often overlooked: improving your credit score. Your credit score is a financial report card used to evaluate your creditworthiness, and it can have a significant impact on your ability to secure loans, mortgages, and even rental agreements. - read more