A Residual or Balloon Payment is a lump sum owed at the end of an asset or vehicle finance term. It lowers monthly repayments during the loan but must be paid, refinanced or cleared when the term ends. Residuals are commonly used in Vehicle Finance, Equipment Finance, and Low Doc Asset Finance. Related terms include Loan Servicing, Term Length, Borrowing Capacity. Relevant blogs include Low Doc Vehicle Finance Guide and Lease vs Buy Equipment.

Why Residuals Matter

Residuals reduce monthly repayments and improve cash flow, making assets more affordable upfront. But the borrower must be prepared for the final lump sum or plan to refinance it through their broader business finance setup, such as a Business Loan, Working Capital Loan, Business Line of Credit or Invoice Finance facility.

End-of-Term Options

• Pay the residual in a lump sum
• Refinance the balloon into a new loan
• Sell or trade in the vehicle/equipment and use the value to clear the residual
• Restructure finance into a longer term

Official info: ato.gov.au