Sunlight Financial balloon payment.

[Rich121]

Hello,

I secured my solar loan through Sunlight Financial. I make payments to Spectrum Credit Union. There is a balloon payment due after the the17th month of the loan otherwise they will re-amortize the loan with a higher monthly payment. There are no pre-payment penalties. My question is if I pay off the balloon payment early will I save on interest? Is there any upside to doing this?

 

[jjrandorin]

I looked at that type of loan for my powerwalls, before deciding to pay in cash for them. Those loans are structured with that balloon payment being = to the amount of tax credit they expect you to receive. In effect, they expect you to send in the tax credit to them within the first 18 months or the loan re amortizes.

While I think you would save on interest if you paid off the loan early, I dont know if there would be any savings for pre paying that balloon payment before its due. I suspect (but dont know) that if you sent in that kind of payment early, it would likely simply applied to principle on your loan, instead of that balloon payment, because that balloon payment isnt done yet.

This is a question you need to go directly to sunlight for and ask how that would impact you, I would think.

I doubt it would be advantageous to pay the balloon early though, but that is entirely just a guess.

 

[aswami]

Hello,

I secured my solar loan through Sunlight Financial. I make payments to Spectrum Credit Union. There is a balloon payment due after the the17th month of the loan otherwise they will re-amortize the loan with a higher monthly payment. There are no pre-payment penalties. My question is if I pay off the balloon payment early will I save on interest? Is there any upside to doing this?

They don't charge interest on that balloon payment until the 18th month. So, no financial incentive to paying it early, except perhaps the peace of mind. That balloon payment is the equivalent of your tax credit. They assume that you will use the entire tax credit to pay down the principal on the loan. And, they are nice enough not to charge you the interest on that portion of the principal for 18 months, if you pay it off within that time period.

 

[wjgjr]

I looked at that type of loan for my powerwalls, before deciding to pay in cash for them. Those loans are structured with that balloon payment being = to the amount of tax credit they expect you to receive. In effect, they expect you to send in the tax credit to them within the first 18 months or the loan re amortizes.

While I think you would save on interest if you paid off the loan early, I dont know if there would be any savings for pre paying that balloon payment before its due. I suspect (but dont know) that if you sent in that kind of payment early, it would likely simply applied to principle on your loan, instead of that balloon payment, because that balloon payment isnt done yet.

This is a question you need to go directly to sunlight for and ask how that would impact you, I would think.

I doubt it would be advantageous to pay the balloon early though, but that is entirely just a guess.

I would agree about going directly to sunlight. I would not assume that sending in the payment early would go to principal - it should, but sometimes there can be rules in the loan where by default it goes towards certain fees and future interest, unless you mark it as a principal payment. So worth double-checking, just do be sure.

 

[charlesj]

If I remember most of those kinds of loans are different from how a mortgage interest is charged. Home mortgages you pay interest on the balance each month and recalculated each month so you benefit from paying it off early.
Cars and most likely this loan is based on what is called Rule 78 so it would not save to pay off early and it may cost you even more. But be sure to pay off that balloon when due or even a month early?
May want to call the credit union and ask how interest is calculated on your loan, rule 78 or like a home mortgage, interest on balance each month.

 

[aswami]

I would agree about going directly to sunlight. I would not assume that sending in the payment early would go to principal - it should, but sometimes there can be rules in the loan where by default it goes towards certain fees and future interest, unless you mark it as a principal payment. So worth double-checking, just do be sure.

OP is specifically asking about a balloon payment that is built into the contract. That payment most definitely goes to pay off the principal. This loan is also structured to apply any additional payments towards the principal.

 

[aswami]

If I remember most of those kinds of loans are different from how a mortgage interest is charged. Home mortgages you pay interest on the balance each month and recalculated each month so you benefit from paying it off early.
Cars and most likely this loan is based on what is called Rule 78 so it would not save to pay off early and it may cost you even more. But be sure to pay off that balloon when due or even a month early?
May want to call the credit union and ask how interest is calculated on your loan, rule 78 or like a home mortgage, interest on balance each month.

This loan is very much structured like a mortgage. Just that they assume you will pay the entire tax credit to them as a one time balloon payment before the 18th month. And they structure the loan from the very beginning as if your principal loan amount is the cost of the install minus that balloon payment. So, that balloon payment is essentially an interest-free 18-month loan. Good deal if you are installing solar with a loan.