‘I’d rather not have one,’ rages driver as ‘balloon payment’ sees them forced to fork out $10,000s to avoid repossession

FINANCING cars can be tricky, especially with so many terms and conditions – but many buyers agree balloon loans should be avoided.

Some may be tricked by the initially small payments, but are shocked by the end-of-loan cost.

Getty

Getty

A balloon payment, otherwise known as a residual payment, is a type of loan that differs greatly from a standard loan .

A standard loan is configured to have buyers pay installments toward the loan at a specific interest rate to ensure the loan is paid off by a specific time.

A balloon payment can be attractive to some because buyers pay off a certain percentage of the loan for a specific amount for a set time.

Then when that percentage of the loan is paid off, the remaining percentage is the lendee’s responsibility.

This can be handy for those who need a car but can’t afford a longer-term loan, Standard Bank wrote.

“The purpose of a balloon is to make your monthly payments more affordable, taking pressure off your budget,” the site reads .

“The benefit is that you can drive away with a new car, have a smaller initial debt owed, and have an extended period to pay off the car.”

However, the bank’s site and X users warn those looking to buy a vehicle using balloon payments of what can happen when the balloon payment is due .

“It’s important to remember that at the end of the initial repayment period, you still need to pay an outstanding amount,” the site continued.

“Therefore, it’s still under the bank’s ownership until you’ve paid off the residual amount… If you have the means or you’ve budgeted the money you saved on the monthly repayments and you’re planning to put that towards the outstanding amount owed or use it to pay off other debt and free up cash flow, a balloon payment can work for you.”

Many people pay thousands after the car is repossessed as they’re stunted by the “new” loan they have to pay off.

X user Andybaby Andile Zama Mdluli ( @AndybabyM ) wrote that she was looking to buy another car, and someone responded saying to avoid balloon payments, regardless of how attractive they may be on paper.

“I’m not buying a car on installments,” Mdluli wrote .

“I’d rather not have one.”

Dealership Tips

Here are some expert tips when purchasing a car from a dealership lot:

• 1. Set your price: Ensure you’ve calculated your monthly budget before going to the lot. You should include the car’s loan payment, insurance costs, fuel, and regular maintenance.
• 2. Research: Make sure you know which cars you’re interested in test driving before you reach the dealership.
• 3. Pre-approval: Secure financing before you go to the dealership. Dealerships may give you a better interest rate if they are competing with an outside bank.
• 4. Test away: Get behind the wheel before making any payments. A car purchase will be worth thousands of dollars – drivers should ensure they like the drivetrain, steering feel, and comfort of the car before taking it off the lot
• 5. Haggle: Drivers should always try to negotiate the price. There are so many good cars on the American market – buyers have a strong hand when negotiating price.

Source: Kelley Blue Book

To reinforce the principles of balloon payments, someone else responded they knew someone who financed a car with balloon payments, and it didn’t end well for them.

“It could never be me, this other lady was celebrating that she finished paying for her car and that she was left with $80,000 as a balloon payment,” they wrote.

“And I was like, ‘Girl, what are you celebrating?'”

In the comments section, she wrote that she had taken out a loan to have her home built, and due to the costs, did not want to finance a car until the home loan was paid off.

She said she could use public transportation in the meantime.

One other user wrote that financing isn’t always bad, especially after everything is paid.

“A few people I know also said this. They said they’d rather not buy a house,” their comment read.

“Well, my car is paid off now and they are still walking. Oh, and what about the house? None of them even has a rented backroom.”