Ballooning balloon payments


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A balloon payment can help reduce your monthly instalments on your car but be careful.

Here’s how it works: A portion of the car’s price is removed from the amount you pay off in instalments and then gets paid as a lump sum at the end of your contract.

Here’s an example:

Car price R150,000
Minus balloon (15%) – R22,500
Amount you pay off in instalments R127,500
Interest rate 11%
Total interest paid R51,569.08
Monthly instalments (5 years) = R3,072.83

But in five years’ time you’ll suddenly need to pay R22,500 in one go. Plus, you end up paying more interest!

 

In the same example, if you don’t have a balloon payment on that car, it would work like this:

Car price R150,000
Interest rate 11%
Total interest paid R46,046.35
Monthly instalments (5 years) = R3,355.79

So your monthly payments are higher but you don’t have to pay R22,500 in a lump sum at the end of your contract. And you pay less interest in total.

 

If you take a balloon payment you may be able to refinance it and pay it off in instalments, but this would be mean more monthly payments and more interest. Also, your car can be repossessed if you can’t pay or refinance the balloon payment when it’s due.

It’s generally wiser to avoid having a balloon payment, and instead reduce your monthly instalments by saving up for a deposit.


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One thought on “Ballooning balloon payments

  1. That’s a lie to me it’s other way round. Got a Ballon of 90 k while the car was R269kwith extras of 40k. Interest 60k.

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