Balloon financing, or three-way financing, usually refers to a mortgage loan, or even a lease loan, that cannot be fully amortized over the life of the debt obligation. So at the end of the loan term, there will be a final payment due. Due to the high final transaction, there is also talk of a balloon payment. Lenders are turning to this financing model primarily for commercial real estate purchases – but rarely for private residential properties.
A mortgage for balloon payments can have a fixed or variable interest rate. The same applies to debt financing of purchases such as furniture or cars, with the latter being characterized as lease purchases. The borrower has the option to decide whether to pay the high balloon payment or forgo the purchase of the property. This applies to a vehicle as well as to a property or a house. A similar investment good to be paid with a balloon loan.
The advantages and disadvantages of the balloon resp. Three-way funding
The main advantages of three-way financing, which is a special form of balloon loan, are the low monthly repayments and the fact that there is no down payment – at least with most lenders. Another positive aspect is that the final installment is already fixed in the loan agreement in advance of the loan term, so that the borrower can make better calculations. In addition, a vehicle return is possible at any time in case of financial difficulties.
The disadvantage is that you have to reckon with a sometimes unbelievably large residual payment. This ensures that this financing model for the car purchase is significantly more expensive than investing in a car by means of an installment loan. The low terms between three and five years – at least in most cases – puts the lender under pressure. If the borrower opts for follow-up financing, this is recalculated, usually not to the borrower's advantage, resulting in additional costs.
Requirements for balloon financing
There are a few requirements you must meet if you want to claim a balloon loan for yourself. Although these are not as strictly defined as with classic installment loans, they must still be fulfilled. The prerequisites include:
- A minimum age of 18 years
- A registration status within germany
- A regular (medium) high income
- At least a medium to high credit rating
- An account with a bank licensed in germany
These are the five main requirements you need to meet in order to qualify for a balloon loan. In addition, copies such as those of the driver's license and driving record may be required if you are seeking such financing for the car.
Balloon financing procedure
The three-way financing process follows standardized standards. You can find out what these clauses are in the list below:
- Application and provision of copies as well as original proofs
- Agreement of important clauses in the credit contract (down payment, etc.).)
- Repayment of the monthly installments and the final payment at the end of the loan term
In the next subsections, we will go into more detail on the three main steps of the process surrounding the application and submission of the application.
Application and provision of copies as well as original supporting documents
First of all, you must apply for this type of financing. You can do this using the loan calculator on our site kredit-vergleich24.Com. After you have found an offer that meets your requirements and needs, you should pick out the copies, but also originals of your documents. Fill out the application now. You will have to provide information about your personal and professional situation. Then you can send the application along with the documents.
Agreement of important clauses in the loan contract
The next step is to sign the loan contract online or in person. Various clauses are stipulated in this. These refer u. A. On whether the lender makes an advance payment, how long the loan term is and how much must be repaid monthly. The amount of the final installment and the possibility of early repayment are also stipulated in the contract. Read the contract thoroughly so that you know what financial burdens you will have to bear.
Repayment of the monthly installments and the final payment at the end of the term
Once the loan agreement has been signed by all parties, the loan amount is disbursed. Now you have to keep to your obligations and pay the monthly installments on time. After the credit period has expired, you usually have the option of resorting to three-way financing or simply repaying the final payment. Remember that this is high. If you want to keep the investment asset that you financed with the loan, you can also rely on follow-on financing.
Variations of balloon financing
There are different variants of the balloon loan, not all of which can be taken up equally. In part, only specialists in the credit market offer certain types of other uses, but some of them are similar to the purchase of cars through the balloon financing model. These include:
- Cars and other vehicles
- Real estate and land
- Gazebos, fences and gates
- Swimming pools and pools
All four investment goods have in common, as with the car loan at the level of balloon financing, that they can be returned to the lender at the end of the loan term. There are other uses for the loan, but they are not as widespread in germany as they are in other countries.
The 3-way financing for the car
The balloon financing for the car is the most common of these variants. It is comparable to the car loan with a connection rate. If financing a vehicle through this loan model is the primary objective – which is the case in more than 90 percent of cases – then your chances of application approval are more than good.
Many car banks and car dealers see this model as a good source of additional income and know that they will at least get the vehicle back in the end if the worst comes to the worst. In addition to cars, the financing of a mobile home through the balloon loan is also very popular.
Balloon financing for other purposes
Other uses, also listed above, include houses, apartments and land. Even expensive equipment for private purposes, such as a private wine cellar with furnishings, a kit swimming pool, a garage and a garden arbor can be financed without any problems using the 3-way loan – provided the lender agrees to this.
Real estate and land are more related to mortgage loans, although it is also possible to buy land, houses or apartments with a balloon loan. However, this form of investment is usually aimed at companies and not at private borrowers. For many lenders, the risk of default is simply too high for this purpose. In addition, you must contact a specialist in such financing, whose conditions may be even more disadvantageous than they already are.
Garden arbors, fences and gates can also be used by home and garden owners via a three-way financing system. However, this is only possible if they are mobile components that are simply (de)installed. Fences in particular are enjoying huge popularity in this regard. That's because there are few lenders in the market that offer terms geared to these capital goods. As an alternative, you must therefore resort to the installment loan.
Even more popular are swimming pools and basins, which must also be mobile to be eligible for three-way financing. Building a pool can cost as much as a medium sized new car and easily exceed 10.Break through 000 euro. If you still want to benefit from the small monthly installments, a balloon loan is just the right thing for this purpose too.
The balloon financing calculator from kredit-vergleich24.Com
With the balloon financing calculator on kredit-vergleich24, you can find.Com look for favorable offers for three-way financing. The calculator is structured in an extremely simple and straightforward way. You can determine the loan amount, the term and, in addition, the purpose of use. Remember that the vast majority of lenders will only give you a maximum term of five years. Also, they usually do not benefit from a free use purpose, which means that the flexibility suffers and you can not make other investments with the leftover loan amount.
Answers to the most important questions about balloon financing
What are the differences between balloon and three-way financing? ?
Basically, there is little difference between balloon financing and three-way financing. An exception is the application of the term. Three-way financing is a special form of balloon loan. At the end of the loan term, there are three options to choose from, which is where the name comes from. Either you make the final installment on your own, or you take out another loan, usually from the same lender, or you return the investment to the lender.
This type of loan is only worthwhile if you do not have a lot of money at your disposal each month and prefer small monthly installments, but know that you will receive a larger sum in the near future – regardless of the source of the payment. If you have free equity at hand and are able to repay even larger installments per month, then you should not resort to the balloon loan, but instead use a low-interest installment loan for yourself. Particularly for large sums such as the investment in a car, the savings due to more favorable interest conditions are often incredibly large.
Why is the balloon considered expensive?
In the case of a balloon loan, the lender foregoes a lot of collateral and grants favorable monthly installments. However, the final installment is high, which is why a classic installment or car loan is usually more favorable. Another key reason why balloon financing is more expensive than other forms of credit is that usually only special lenders are willing to approve it – such as the major autobanks in germany. In contrast, the monthly interest rates are usually moderate.
What providers are there for the balloon financing?
Balloon financing is available from both traditional credit institutions and, above all, automobile banks. Mortgage banks are also increasingly jumping on this trend bandwagon. Well known providers in germany are BMW bank, volkswagen bank and mercedes bank. SMAVA also offers balloon loans as a credit intermediary for private lenders and borrowers, although these are usually associated with expensive conditions. The classic credit institutions on this market include DKB and the savings banks, which, however, usually speak of three-way financing rather than balloon financing.
What are the alternatives to balloon financing??
Balloon financing is a financing construct all its own, and can't really be compared to other credit models. Nevertheless, it is worthwhile to take a look at the classic loans with free use or. Throwing for real estate or car loan. It also depends on what kind of investment you want to make. These alternatives are cheaper than the balloon loan. However, the classic installment loan without a tied purpose is the best alternative.