In most cases you can repay a car or asset loan early, but some loans charge an early repayment fee and some fixed-rate loans have break costs. A shorter term means higher repayments and less interest overall. A longer term lowers repayments but costs more in interest. A balloon payment lowers repayments further by leaving a lump sum due at the end.
By Tom Dihm, Director, Greenside Finance. Last updated: 5 October 2026.
Most car loans run from one to seven years, and five years is the most common. The term is a trade-off between what you can afford each month and what the loan costs in total.
Lenders also limit the term based on the car's age. An older used car often means a shorter maximum term. See used car loans for how this works.
Usually yes, but check your contract first. Look for three things.
Ask for a payout figure in writing before you decide. It shows exactly what you owe on that day, including any fees.
A balloon payment, also called a residual, is a lump sum you owe at the end of the loan term. Your repayments cover only part of the loan, and the balloon covers the rest. Because you are not repaying the full amount over the term, regular repayments are lower.
If you borrow for a car over five years with a balloon, you repay the loan in monthly instalments and the balloon falls due on the last day. At that point you can pay it in cash, refinance it into a new loan, or sell the car and use the proceeds.
Balloons are more common on business and asset finance, where cash flow matters and the vehicle or equipment is expected to hold its value. Lenders cap the balloon, and the cap tends to be lower for longer terms and older vehicles. For consumer loans, balloons can be limited to stronger applications. If you are considering one, ask for a no-balloon option alongside so you can compare total cost.
For business buyers, see commercial car loans and equipment finance.
If your income is irregular, for example FIFO rosters or seasonal work, a slightly longer term with the freedom to make extra repayments can be a good fit.
It depends on the lender and contract. Some charge early exit fees. Others do not. Always ask for a payout figure first.
Five years is the most common, though terms range from one to seven years.
Yes, because you are not paying off the full loan over the term. The trade-off is a lump sum at the end and more total interest.
You can often refinance it or sell the car, but if the car is worth less than the balloon you may have a shortfall. Plan for this at the start.
On many loans yes, but not all. Ask before you sign.
Want to compare terms side by side? We can show you options with and without a balloon. Get a free quote, or see our car loans.
