Balloon payment: how high should you set it?

Effect on your monthly instalment

A higher balloon payment means a lower monthly instalment, but you pay interest for longer on that portion. Use the lease calculator to see the difference immediately.

Aligning with residual value

Choose a balloon payment that is no higher than the expected residual value of the car at the end of the term.

How does the balloon payment affect depreciation?

The level of the balloon payment has a direct impact on the depreciation of the vehicle over the term of the financial lease agreement. A higher balloon payment means that a smaller portion of the purchase value is depreciated during the term. This can be advantageous for businesses that intend to keep the vehicle after the lease contract ends or expect the residual value to be high.

By opting for a higher balloon payment, a larger part of the total depreciation shifts to the point of return or acquisition. This affects the company's balance sheet and can have tax implications, as depreciation costs are claimed annually as business expenses. It is therefore important to consider the expected lifespan and use of the vehicle when determining this amount.

When is a balloon payment beneficial for your liquidity?

A balloon payment can positively influence your company's liquidity, especially when you want to commit less capital upfront to monthly repayments. By deferring a portion of the purchase price to the end of the term, your fixed monthly outgoings remain lower. This creates financial headroom that you can use for other business investments or to absorb unexpected expenses.

This financial flexibility is attractive for businesses looking to optimise their cash flow and prefer not to tie up too much financial resource in asset ownership. However, it is crucial to plan ahead for the financing of the balloon payment at the end of the contract, to avoid liquidity issues at that time.

• Lower monthly lease costs
• More cash flow for other investments
• Financial headroom for unexpected expenses
• Option to refinance at the end

Frequently asked questions