A report by The Car Expert on the 8th of February 2019 revealed that although fewer Britons bought a new or second-hand car in 2018, more of them made the purchase using car finance.
Borrowing for the purchase of a new car rose to a record average of £21,000 per vehicle and £12,500 for a used car.
By far the most popular form of borrowing for these transactions is through Personal Contract Purchase (PCP) which, as the Finance and Leasing Association (FLA) explains, involves lower monthly repayments than on, say, a hire purchase agreement. This is because payment of the Guaranteed Minimum Future Value (GMFV) is deferred until the end of the agreement. Unsurprisingly, therefore, the FLA also reveals that some 82% of all car finance deals are for PCPs.
In accordance with the standard PCP, the GMFV is likely to involve many thousands of pounds.
While the contract offers you the opportunity of handing back the car to the finance company, you may otherwise need to find that significant amount yourself if you want to keep it, arrange for the sale of the car, or offer it in part exchange.
But balloon refinancing gives you yet another option if you want to keep the vehicle.
So, how does balloon refinancing work?
It’s a product where a customer’s final balloon if refinanced as it falls due on a current agreement – providing the option for someone that wants to keep their vehicle rather than sell, part-exchange or pay the balloon outright themselves.
Security for that balloon refinance loan is provided by the car itself – and your submission of the vehicle’s registration document, or V5 – together with the other checks normally made whenever you are arranging any other type of car finance.
Balloon refinancing, therefore, gives you the option of settling the final GMFV with the finance company and keeping the car you have been buying through a PCP or HP arrangement.
Having refinanced the purchase of the car, of course, you still retain the option of subsequently selling the car outright or offering it in part exchange whenever the time comes for you to change your car (subject to you clearing any refinance amount outstanding of course).
There are specialist car finance providers, such as ourselves at Forza Finance, who offer this flexibility for making the most of any PCP or HP arrangement.
Some may offer refinancing deals whether you are a private individual or a company – in the latter case, thereby also widening your options when it comes to maximising the investment you have already made in your vehicle fleet.
Either way, therefore, balloon refinancing may give both private individuals and companies a simple and straightforward way of exercising their choice in retaining a car that is nearing the completion of a PCP (or, in some cases, an HP) agreement.
If you are coming to the end of your current car finance agreement and want to find out more about balloon refinancing, why not get in contact today?