Car Loan - Balanced Payment

Balanced payment is similar to hire purchase since it transfers the ownership of the vehicle at the end of the period. However, there is one aspect that makes balanced payments different to hire purchase. In hire purchase, the monthly repayments are fixed so that the borrower has to pay the same every month. Balanced payments, on the other hand, has monthly payments based on a variable rate of interest. The monthly repayments thus changes according to the interest rate prevailing in the open market.

Balanced payments allow the car purchaser to make a lump sum payment as and when needed. In addition, the loss that a borrower has to bear on an early repayment of the balanced payments agreement is lesser. The borrower may or may not repay the amount unpaid under the balanced payments through a balloon payment. This enables the borrower to lessen the cost of interest.

Balanced payments require a low initial deposit from the borrower. Thus, many borrowers who could not arrange the requisite deposit under hire purchase too have a chance to acquire their dream vehicle through balanced payments.

The monthly payments are exempted from VAT, thus making balanced payments more lucrative than the other methods of car finance. Termination costs are lower in case of balanced payments.

Other methods of acquiring car loans

• Leasing
• Personal Contract Purchase (PCP)
• Contract Hire
• Lease Purchase
• Hire Purchase