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

In New Brunswick, a balloon loan for a car means you'll have lower monthly payments throughout the loan term, but a substantial, single "balloon" payment will be due at the very end to cover the remaining principal. This structure can make a higher-value vehicle seem more affordable on a monthly basis, freeing up immediate cash flow. However, it introduces significant risks for the consumer.

The primary concern is the final balloon payment. You might need to refinance this amount, and future interest rates (especially in a potentially volatile 2025 market) could be higher, increasing your overall cost. There's also a considerable shortfall risk: if the market value of your vehicle at the end of the term is less than the balloon payment due, you'll owe the difference, potentially leaving you underwater. Cars depreciate, and relying on future market conditions to cover a large lump sum can be precarious.

While less common for standard personal car loans than leases in Canada, balloon loans are offered by some specialized lenders or dealer programs, including in New Brunswick. It's crucial to understand that all terms, including the balloon payment, must be clearly disclosed under provincial consumer protection legislation like the Cost of Credit Disclosure Act. Always have a concrete plan for managing that final payment - whether through savings, a guaranteed trade-in value, or a pre-approved refinancing option - to avoid financial strain or unexpected debt.