Using Balloon loans for car finance

[ClaireBear]

Just the other day I bought myself a new car (Subaru Forrester, the new one , YAY!) and I have got to share with you a great little trick for saving money on car finance.

Has anyone ever heard of a balloon payment when dealing with car loans?

It limits the amount you need to borrow up front.

Here is an example:

Car Finance Loan
$30,000 = Total cost of car.

Your Savings
$10,000 = Your savings you have ready for your car.

Balloon Option
$10,000 = This means that your car loan is reduced by $10K upfront but will be paid back on your last car payment.

What is your total loan amount?
Total cost minus Your savings and the balloon = $10,000 finance.

The balloon payment is then paid back on the completion of the loan, thus saving you interest payments for the life of the loan and reducing how much your monthly payments are.

The only catch is you need to make sure that you have that balloon payment come the end of your loan. Shouldn't be too hard if I budget away a couple of hundred dollars per month towards it, letting it accumulate in a high interest savings account!

I hope that made sense? Has anyone else had any issues with this style of car loan? Hoping it will save money on interest for my loan over the course of 4 years!

[gareth]

The idea of a high interest savings account is a good idea though so long as you're disciplined!

How much interest do you think you'd save over the term of the loan?