Everything You Need To Know About Car Balloon Payment
Many people are often sceptical about car balloon payment and what it means for them when looking for vehicle financing. The aim behind balloon payments is to make monthly instalments more affordable. However, with any financial agreement, it is important to understand its terms and conditions and whether they will suit your financial needs.
In this series, we’ll explain what a balloon payment is, what you can save from it and whether it's a viable financial option for you.
What Is A Balloon Payment
To simplify it, it's a lump sum payment made at the end of your vehicle loan. Think of it as your vehicle deposit, instead of paying it at the start of your vehicle loan repayment term, you’re paying it at the end as your final instalment. And is structured in this manner to assist potential vehicle buyers to purchase their vehicles at a fixed payment amount in the beginning and save up the rest at the end of the term.
Dealerships like Auto Pedigree have three-vehicle purchasing options available, no deposit, deposit, trade-in or purchase with a balloon payment.
How Does A Car Balloon Payment Work?
It’s best to illustrate it as follows:
Nick has opted for a no-balloon option, while Zano has opted for a balloon option of 35% for the same vehicle.
|
Vehicle Price
R189 000
|
Nick
(No Balloon)
|
Zano
(Balloon Option)
|
|
Total Repayment
|
R189 900
|
R191 107.50
|
|
Monthly Instalment
|
R3026
|
R 2991.74
|
Possible interest rate of 10.54%, p.a for a five-year term.
Nicks’s monthly instalment over the five-year period will be higher than that of Zano’s.
While Zano will have a pocket change every month from paying lower monthly instalments. However, she will have to pay the outstanding last instalment of R66, 887.63 while Nick will owe nothing.
Hence, many used car dealership consultants will advise that when opting for this option, it's best to save the extra money towards the last instalment. And that requires financial discipline. One of the best ways is to open a savings account dedicated to the last instalment. At Auto Pedigree, our skilled sales consultants are available to walk you through this option.
In the event that Zano is unable to pay the last instalment, the bank may extend the vehicle term however, it may be costly if not duly paid.
Highlights
- No upfront deposit
- Lower monthly instalments
- Ample time to save from lower costs
Drawbacks
- Repayment could be longer if interest-based.
- A little riskier than traditional loans.
If you’re looking for a vehicle and considering a balloon payment option, visit any of our nationwide Auto Pedigree branches and speak to our consultants today.
