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MZANSi people just their flashy cars, and in some cases people resort to balloon payments in order to have that expensive car they can't afford.
Stats have shown that although Mzansi petrolheads love their flashy cars, they prefer second-hand cars over expensive new vehicles.
Consumers have different options to use when financing their cars, some of the choices are Installment finance with a balloon payment, Guaranteed future value (GFV), and Installment finance.
BALLOON PAYMENT
With this option, a portion of the purchase price is set aside so that the repayments are calculated on a lower amount.
Simply put, a balloon payment is like a deposit, except it’s payable at the end of a term instead of at the beginning.
SunWheels spoke to WesBank Head of Motor, Ghana Msibi who said consumers must be cautious and aware of the amount put into a balloon because they will be responsible for the lump sum at the end of the term agreement.
Msibi said it is advisable to understand the various finance options available to consumers prior to making that buying decision. Often, as a result of raised excitement, consumers don’t ask enough informed questions during the purchasing process.
GUARANTEED FUTURE VALUE
Guaranteed future value, in recent years has become an increasingly popular form of vehicle finance amongst South African consumers.
This finance option appeals to the customer who is interested in using the car versus full ownership.
A GFV plan calculates the future monetary value of a vehicle, provided the vehicle condition, mileage and maintenance agreements are adhered to.
This guaranteed future value helps consumers know exactly what their car will be worth once the pre-determined contract term, which is usually between three and four years, is reached.
At the end of the pre-determined contract term, the customer can either enter into another GFV deal and drive away in a new vehicle, settle the outstanding amount and own the vehicle, or simply return the vehicle to the respective dealership and walk away, provided the driver didn’t exceed the prearranged mileage and the vehicle is in an acceptable condition according to the agreed terms.
INSTALLMENT FINANCE
This is the most straightforward of all available vehicle finance options. Monthly repayments are calculated on the purchase price of a vehicle, minus whatever deposit is put down at the commencement of the deal.
Finance terms can be structured into time frames of between 12 and 72 months. The longer the term, the lower the monthly repayment will be.
However, interest will add up over longer terms and the total amount repaid to the bank will increase proportionally.
