Balloon payments: 'Your residual should never be more than 20% of the vehicle's value'
A balloon payment, also known as a residual payment, is reportedly becoming attractive for many as the cost of living soars.
Picture: Pixabay
Gugs Mhlungu spoke to resident Motoring Enthusiast, Warren Tucker.
Listen to their conversation in the audio clip below.
Balloon payments are reportedly becoming attractive for many as the cost of living soars.
A balloon payment, also known as a residual payment, is when a bank or finance house takes a percentage of the purchase price as a deferred payment at the end of a loan agreement.
Going the balloon payment route basically allows you to buy a vehicle that you actually can't afford but what makes this option look attractive is the monthly installment amount that makes you think it's cheaper.
"A residual is a tool... If used correctly, you're fine."
- Warren Tucker, Motoring Enthusiast
"Your residual should never be more than 20% of the value of the vehicle."
- Warren Tucker, Motoring Enthusiast
"There's no financial literacy out there."
- Warren Tucker, Motoring Enthusiast
The reality is that a balloon payment will see you paying significantly more interest and you will have to come up with a lump sum at the end of your financing period to settle that balloon payment.
It is advised that you rather save towards a deposit for the car you really want or purchase a vehicle that is within your budget.
Scroll up to listen to the full interview.