In AB, what should I know about balloon loans for car loans?

A balloon loan for a car in Alberta, like elsewhere in Canada, features significantly lower monthly payments throughout the loan term, but culminates in a single, much larger final payment - the "balloon." This structure can make a more expensive vehicle seem affordable upfront, as it defers a substantial portion of the principal to the end. However, this approach carries considerable risks that consumers must understand.

The primary concern is the large final payment itself. You'll need to either pay this lump sum, trade in the vehicle (hoping its market value exceeds the balloon amount), or refinance the remaining balance. Refinancing introduces interest rate risk; if rates are higher in 2025 or beyond when your balloon payment is due, your new monthly payments could be significantly higher than anticipated, or you might pay more interest over the loan's total lifespan.

Furthermore, there's a depreciation risk. If the vehicle's actual market value at the end of the term is less than your balloon payment, you'll face a shortfall, meaning you'd owe money even after selling the car or trading it in. This structure is less common for new car financing in Canada compared to traditional loans or leases, but it exists and requires careful financial planning. Always ensure you have a clear strategy for handling that final large payment to avoid unexpected financial strain.