When acquiring new vehicles with financing with Chattel Mortgage or Commercial Hire Purchase, operators are offered the option of including a truck loan balloon. This component of the original amount borrowed is due to be paid in full to the lender at the conclusion of the term. That is, after the last monthly repayment has been made.
At some time in the lifetime of the vehicle ownership – up to 7 years from the original purchase, operators will need to address the issue of making this payment. The full amount is due in one payment. Depending on the percentage of the original funding the payout represents, this may be a sizeable amount. An amount which may be unworkable to pay in a lump sum from available cash funds.
Many operators may choose to upgrade their vehicle prior to, or to coincide with, the end of the credit term and the payout date. In these situations, the proceeds from the trade-in or resale can be used to finalise the existing funding. Where the operator chooses to keep the vehicle, they will need to consider their options for finalising the amount due to the lender at the end of the funding term.
Jade Truck Loans provides a range of workable financing options at affordable interest rates to enable operators to finalise a truck loan balloon. As experts in commercial credit, we work with operators and our lenders to source and structure the most workable arrangements for individual customers. Operators can speak with us ahead of the due date to discuss the options available to suit their individual set-up and vehicle.
What is a Truck Loan Balloon?
This concept applies to Chattel Mortgage and Commercial Hire Purchase. A similar concept - the residual, applies with Leasing but with some variations. It is a percentage of the amount borrowed, often the purchase price of the vehicle, which is set aside for finalising at the end of the term.
The percentage is subject to lender approval. This component of the funding can be utilised effectively to reduce the monthly payments. Operators should be mindful to opt for a percentage that is a realistic expectation of the value of the vehicle at the time the amount is due. That is, in up to 7 years time from the purchase date. Otherwise, the amount payable may exceed the value of the vehicle, complicating any plans to refinance the payout.
Paying Out Truck Loan Balloon
When the time to finalise the credit, the end of the term, is approaching, operators need to address their option. First step is to contact the lender to get an exact figure for the payout. Our brokers can do this on your behalf if preferred. How and when the interest has been accrued on the credit over the term, will impact the amount of the payout. The final amount payable will be the original percentage plus interest accrued over the term.
Operators are advised to start considering their payout options say a month prior to the due date. This would allow time to explore and consider the options in full and make an informed decision.
The options are to refinance that amount or pay it in full from existing funds. The considerations include any tax benefits to be realised from refinancing. Weighing up interest payable on refinancing against any deductions not realised if payment made from cash funds may be advisable.
If refinancing, we can get credit approvals in 24 hours. So if addressing the payout has been left to the last minute, we can assist with prompt action and fast financing approvals.
Balloon Financing Options
Truck Refinancing is a popular choice to finalise vehicle credit arrangements. The same or a different form of commercial credit may be selected from the original credit - CHP, Leasing, Chattel Mortgage or Rent-to-Buy. Where the vehicle is not accepted as suitable security for either of these facilities, operators can consider our Unsecured Business Loan facility.
The same or a different lender may be chosen. Our brokers will source the most workable offer from the lender that best matches the operator’s requirements from across our vast lender panel.
As the vehicle is now 5,6,7 years old if originally purchased new or older if purchased second-hand, the new funding arrangement would be based on approval criteria for used vehicles. The funding would attract interest rates relevant to second hand vehicles. The interest rate would be based on current rates, not the rate that applied when the initial funding was arranged.
Lenders assess the age, condition and potentially working life of the vehicle when approving term and credit amount for refinancing payouts. The current valuation of the vehicle will be assessed and used by lenders when approving applications, accepting or not the vehicle as collateral and preparing credit offers.
A new balloon with Chattel Mortgage and CHP or a residual with Leasing is available. The credit term approved will be subject to lender negotiations which we handle for our customers.
Tax Benefits of Refinancing Truck Loan Balloon
Tax benefits available on the refinanced credit will be as per the selected facility and subject to the ATO rulings at the time the credit was arranged. Note that if the original financing was with Chattel Mortgage or Commercial Hire Purchase, the full amount of GST applicable to the vehicle would have been claimed. Therefore, no further GST would apply to refinancing with these types of facility.
Where Leasing or Rent to Own is selected for refinancing, GST would be applied to the monthly payments and claimable by businesses registered for GST.
Note that accelerated asset depreciation measures, ie Instant Asset Write-off, apply only to assets which are new to the business, not assets being refinanced.
Eligible Businesses and Vehicles for Refinancing Balloon
All types of vehicles including cab only, cab and trailer, heavy, medium and light duty and ready to work models. All types of commercial operations – sole traders, companies, partnerships and large corporations.
Where the entity was new or start-up at the time of the initial funding, it would be presumed that the operation is now 5,6, 7 years old. If no docs or low docs was originally used, this type of funding would typically not be required for refinancing the payout. Could attract better rate and better credit conditions.
Calculating Truck Loan Balloon Refinancing
Use our Truck Finance Calculator to generate estimates that may assist with deciding if refinancing is a viable option or whether making the payout from existing cash flow funds is a preferred option.
Be mindful that the rate applicable to used vehicles may differ from the best rates we are currently displaying, which are for new vehicles.
The best option is to speak with one of our brokers so we can handle refinancing your vehicle credit final payments for you.
Contact Jade Truck Loans on 1300 000 003 for refinancing truck loan balloon options.
DISCLAIMER: THIS INFORMATION IS ISSUED PURELY FOR THE PURPOSE OF GENERAL INFORMATION PROVISION. IT IS NOT TO BE TAKEN AS THE ONLY SOURCE OF INFORMATION FOR BASING FINANCIAL DECISION-MAKING. THOSE REQUIRING FINANCIAL GUIDANCE AND ADVICE SHOULD CONSULT WITH THEIR FINANCIAL CONSULTANT OR ADVISOR. NO LIABILITY IS ACCEPTED FOR ANY MISREPRESENTATION OF POLICIES, DATA OR ERRORS IN THIS CONTENT.
