South Africans are taking out longer loans for cars – And they’re paying the price for it

Cash-strapped car buyers in South Africa are increasingly turning to loan agreements that lower their monthly premiums, instead of worrying about the total repayment.

This has led to an increase in the average finance agreement term in South Africa, which now spans 72 months (six years).

According to data from Lightstone Auto, even longer-term plans of 84 months and 96 months are also growing in popularity.

Consumer credit reporting agency TransUnion’s first-quarter Mobility Insights Report supports these findings.

“The shift towards longer financing terms and the use of balloon structures reflects a growing focus on monthly affordability and cash-flow flexibility,” it noted.

In March, inflation rose from 3.1% to 4.0%, directing the South African Reserve Bank’s Monetary Policy Committee (MPC) to raise the prime lending rate by 25 basis points in May 2026.

Combined with higher fuel and transport costs, consumer spending and affordability are facing renewed pressure.

Despite this, Ayesha Hatea, director of research and consulting at TransUnion South Africa, noted that vehicle demand has not collapsed, but the market is instead moving into a more selective phase.

“Consumers are still buying vehicles, but affordability is no longer only about the purchase price,” she explained.

“Fuel costs, financing costs, insurance, servicing, and total cost of ownership are becoming central to the decision.”

TransUnion’s report found that one component becoming increasingly important as buyers calculate affordability is the vehicle’s residual value.

“As finance terms extend beyond six years for many buyers, depreciation and resale performance play a growing role in ownership economics,” it reported.

However, the trend leaves lenders exposed to long-term residual value risk, where vehicle values underperform expectations.

This may lead to consumers encountering refinancing pressures or negative equity when they look to trade in the vehicle.

This becomes clear when comparing the total repayment value on a vehicle financed for five years to that of one financed for six.

Below is a table comparing what buyers can expect to pay for an entry-level Toyota Corolla Cross financed without a deposit or balloon payment, at 10.50% for 60 months or 72 months.

These calculations show that while financing a new vehicle purchase lowers monthly repayments and provides short-term relief for households, the total repayment value becomes significantly higher for every year added to the agreement.

How buyers are delaying settlements

Once buyers have reached the end of their vehicle finance agreement term – whether that be a standard five-year agreement or a longer term of six or seven years – there are multiple options to consider.

The simplest way to settle the outstanding balloon fee is to pay the entire amount alongside the final loan instalment as a single payment.

This requires the borrower to remain disciplined throughout the duration of the loan and set aside money each month to meet the final payment.

If this is not possible, banks and other lenders tend to offer payment options that may ease the repayment process.

The first option is to refinance the balloon amount, which allows borrowers to pay off the balance of their balloon payment following the close of the loan term.

It must be noted that this option requires an additional loan arrangement, which must be agreed upon well before the final payment is due.

“If your credit status is in bad shape, you might not be able to refinance your balloon payment or even get financing for your next vehicle,” warns WesBank.

“It’s a good idea to check your credit status with the credit bureau before you apply, while you still have time to put things right.”

If the balloon cannot be settled – either as a single amount or under a refinanced agreement – the vehicle may need to be returned to the lender to cover the outstanding amount.

“You can arrange that your car’s trade-in value is used to cover its balloon, but if your trade-in doesn’t cover the balloon in full, you will have to settle it in full,” notes WesBank.