Balloon payment options at end of HP, plant, vehicles, equipment
Your hire purchase is approaching the final balloon. The lump sum is too large to clear from cash and the asset is still core to operations. You have four routes: pay from cash, refinance, sale-and-leaseback, or hand back. The right one depends on the asset's residual value and the trading position.
The four routes
Route 1: Pay from cash. Cleanest. Title transfers, asset is now company-owned, no further finance cost. Best when the company has the cash and no better use for it.
Route 2: Refinance as a new HP. Most common. The current lender or a competing asset lender (Time Finance, Aldermore, Funding Circle) writes a new HP against the residual value of the asset, term 24 to 60 months. The asset stays in use, monthly payments are usually lower than the original because the principal is smaller. Best when the asset has 3+ years of useful life remaining.
Route 3: Sale-and-leaseback against another owned asset. If the company owns other plant outright, a sale-and-leaseback releases cash to clear the balloon. Covered in depth at /asset-refinance/sale-and-leaseback/.
Route 4: Hand the asset back. Sometimes the right answer. If the asset is worth less than the balloon (negative equity), if the asset is approaching end of useful life, if the operational need has changed.
Worked example, £40,000 balloon on a 4-year-old forklift
Original 5-year HP on a £100,000 forklift, monthly £1,200, balloon £40,000. The forklift has 5 to 7 years of remaining useful life.
- Indicative trade value of the asset: £45,000 to £55,000.
- Refinance HP route: new HP at £40,000 over 36 months, indicative monthly £1,250 to £1,350. Asset stays in use. Cleanest outcome.
- Cash route: £40,000 from reserves. Title transfers. Asset becomes company-owned.
- Sale-and-leaseback route: if there's another owned asset on the books worth £60,000+, sale-and-leaseback releases £40,000+ to clear the balloon.
- Hand-back route: not optimal here, since the asset is worth more than the balloon.
The right route in this example is refinance HP if cashflow is tight, cash if cashflow is comfortable, and sale-and-leaseback if there is a mixed asset base.
What to do now
- Pull the original HP schedule, the current outstanding balance and the projected balloon figure.
- Get an indicative valuation. Vehicles: CAP HPI or Glass's Guide. Plant: an auctioneer's desktop valuation.
- Compare asset value against balloon. Our balloon and residual value working model does this month by month, with the value 25% lower and higher. Positive equity opens cash, refinance and sale-and-leaseback. Negative equity narrows you to refinance, sale-and-leaseback against another asset, or hand-back.
- Start talking to lenders or a broker 60+ days before the balloon date.
FAQs
What is a balloon on a hire purchase?
A balloon is a final lump-sum payment at the end of a UK hire purchase, typically 20% to 50% of the original asset cost, that clears the residual outstanding before title transfers to the company.
When does the balloon become payable?
On the final scheduled payment date of the HP. Most lenders send a 90-day reminder and a 30-day reminder. Title transfer is conditional on the balloon being paid; if not paid, the lender retains ownership and can repossess.
What are the four routes for handling a balloon?
Pay it from cash, refinance it as a new HP against the residual value, sale-and-leaseback to release equity from another owned asset and clear the balloon, or hand the asset back. Each fits a different situation.
Which UK lenders do balloon refinance?
Time Finance, Aldermore, Funding Circle and other specialist asset lenders. The original lender almost always offers a refinance product if the asset has useful life and the trading position has held up.
Can I refinance a balloon if I am late?
Possible but harder. Inside the 30-day reminder window most lenders will still refinance. After the missed balloon date the original facility moves to default status. Plan 60+ days out where possible.
What happens if the asset is worth less than the balloon?
Negative equity. The gap has to come from cash, an unsecured top-up loan or a partial sale-and-leaseback against another asset. This is common on rapidly-depreciating yellow plant, specialist vehicles and certain types of IT equipment.
Are balloons available on all asset finance products?
Most commonly on hire purchase. Less common on finance lease (where the lessor retains ownership and the balloon equivalent is folded into the lease structure). Operating lease has no balloon by definition.
Does a balloon refinance count as new debt for FRS 102?
Yes. From 1 January 2026, both the original HP and any refinance HP sit on balance sheet as a right-of-use asset and a lease liability under the amended FRS 102. See our FRS 102 page for detail.
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Send an enquiry →By Adam Parker. FundBiz is owned and operated by Best Business Loans Ltd, directed by Oliver Mackman. Last updated: .