Normal loans with balloon payments

My situation is that I have money tied up in a fixed rate bank account until around this time next year. Now I find I may need to take out a loan (yeah, not really one with the forward planning here). Is it possible to get a loan like the car companies tend to do on new cars where you pay a small amt per month and then a large balloon payment at the end. If I time it right, I can cover the balloon payment with the proceeds of the fixed rate account and not have the loan drag out.

Have you spoken to the bank in which you have the deposit?

They might give you a loan with the deposit as security.

Nice plan, Brendan, but the bank is KBC who only offer savings or mortgages.

Are you allowed to break the fixed rate by paying some kind of penalty and would that not be better than borrowing money?

Spoke to my bank today, and while I'm (just) outside the cooling off period, he thought it might be possible - the only iffy bit is there may be a charge, the difference between the rate they are getting for my money they invested vs having to borrow that money from somewhere else (??!). I think that's it.

Anyway, he didn't know what this charge might be, but unless it's more than the difference between the expected interest I'll make on this account vs what it will cost me to get a loan, it's totally worth it.

If you get a variable rate loan with no early repayment penalties, or one from the credit union over twice the length you need it you can treat it like a balloon lease. Just pay off the amount outstanding when your savings mature.

billy-bob said:

Spoke to my bank today, and while I'm (just) outside the cooling off period, he thought it might be possible - the only iffy bit is there may be a charge, the difference between the rate they are getting for my money they invested vs having to borrow that money from somewhere else (??!). I think that's it.

Anyway, he didn't know what this charge might be, but unless it's more than the difference between the expected interest I'll make on this account vs what it will cost me to get a loan, it's totally worth it.

Click to expand...

See below explanation of the KBC term deposit breakage fee from a different thread:

huskerdu said:

Lets say that the 40K is deposited at 4% for 1 year. You withdraw the money after 6 months.

The total interest for the year is 1600 ( Lets ignore DIRT for simplicity)
After 6 months, you withdraw the money.

At the time, the 6 month fixed rate is 5%.

The breakage fee is the different between what they would have paid you in interest for the last 6 months at 4%, compared to the interest they would pay someone who deposited 40k at 5% for 6 months.

A = 40k
B = 5% - 4%
C = 0.5

The total is €200.

The Nationwide UK policy, which is simpler, would result in a breakage fee of €400.

I used the example interest rates above as they are simple.

Currently, the 6 month fixed rate is probably lower than the original 1 year rate.

I dont know what KBC policy is, in these circumstances. Investec, who have a similar policy, use a similar formula with 0.5% as a "fee", so the breakage fee would be €100.

Click to expand...

Thanks for the explanation, Ciaran. The account's only been open a fortnight, so I'm hopeful the break fee will be 0, but no matter how I do my sums, it makes absolutely no sense to take a loan while I have money sitting somewhere.

Does it ever make sense to borrow over savings?

Further to my thread below, my bank has offered me a e0 break fee to get out of their fixed rate account, so I've gone ahead and closed the account. Good news, but now I'm wondering if I shouldn't still go ahead and get a car loan out. I can still cancel the closure, as it was done by letter this afternoon.

Here's the bottom line, KBC will make me 285 in year one; assuming they offer something similar next year, that means I'll make 570ish in 2 years. In those 2 years, a loan on some of the car price will cost me 952 in interest. So in my mind, I'm either losing 952 (by taking the loan) or losing 570 (by not taking the loan). So less than 400 quid basically. And for that, my savings are not decimated across the board, which if things go pear shaped financially for me, I'm going to be screwed.

I think the numbers are close enough that the extra peace of mind of having more money sitting in my bank account makes getting the loan worth it, but I'm wondering if I've missed something?

(Sry mods, Chrome is going mental tonight. Please delete the post below this one)

PS: After double checking the numbers (as I thought the amount to repay looked a bit high, the loan cost is actually lower, just 609 over 2 years), so less than 40 quid for peace of mind that comes with having money in the bank.

(Apologies to the mod, should've merged my own threads)

Use your own cash for the car purchase and negotiate hard with whomever you are buying from, dealer or private .....cash is king, your cash is better vale to you than borrowing anybody elses under any circumstances...lucky you !, safe motoring..