Balloon Payments on Car Finance | South Africa Loans Online

Balloon Payments on Car Finance

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Balloon Payments on Car Finance: Are They Worth It in South Africa?

A balloon payment lowers your monthly car instalment by postponing part of the vehicle’s cost to a lump sum at the end of the finance agreement. They are common: WesBank says around 30% of its vehicle finance business includes a balloon, and the average balloon has grown from about 25% of the financed value before COVID to roughly one-third. With higher rates now, it is worth understanding the trade-offs before you sign. The table below compares a balloon deal with a standard instalment deal, and you can compare NCR-registered lenders on saloansonline.co.za.

Feature Balloon Payment Deal Standard Deal (No Balloon)
Monthly instalment Lower, because part of the cost is postponed Higher, but you repay the vehicle from day one
Lump sum at the end Yes. For example, a R340,000 car with a 35% balloon leaves about R119,000 to settle. None
Ownership The balloon must be settled before you take full ownership You own the car once the final instalment is paid
Main risk Your trade-in value may be lower than the balloon, or you may be unable to afford the lump sum Often needs a longer term, such as 84 months, to keep payments low
Cost over time Usually cheaper at lower rates, but you pay interest on any refinanced balloon Avoids the final lump sum, but a long term adds interest

Questions to ask before you sign

  • Does the agreement include a balloon payment, and how large is it?
  • What would it cost to settle the agreement early?
  • How will I pay the balloon: savings, a trade-in or extending the loan?
  • Does my insurance cover the balloon if the car is stolen or written off?

Balloon payments were reported in fewer deals in September, but they remain common. This article is for information only and is not financial advice.

Sources