R1,850 per month extra for anyone with this type of car loan in South Africa
South African car buyers financing a R300,000 car with an average balloon agreement in place need to put away an additional R1,850 per month to meet their obligation at the end of a five-year loan term.
That is because, according to Lebogang Gaoaketse, Head of Marketing and Communication at WesBank, the average balloon size per finance deal in South Africa has reached 37%.
To meet this obligation on a R300,000 vehicle, the final repayment must be accompanied by an additional R111,000 in cash to take ownership of the car.
Car buyers can use the following formula as a guide to see whether this type of deal will fit their budget:
- Vehicle purchase price – R300,000
- Deposit – R0
- Loan term – 5 years / 60 months
- Prime lending rate – 10.75% per annum
- Monthly repayments – R5,080
- 37% balloon lump sum due at month 60 – R111,000
- Monthly savings to make balloon payment – R1,850
- Total monthly expense – R6,930
The R5,080 monthly repayments cover the monthly debt service to the finance house, calculated on the loan principal.
The additional R1,850 per month funds the balloon cash reserve, which will be a lower amount if the monthly instalment is saved in an interest-bearing account.
Either way, buyers will need to accumulate an additional R111,000 in cash to settle the balloon payment at month 60 without refinancing.
It must also be noted that a deal like this will add over R100,000 in interest to be repaid on a R300,000 vehicle.
Below is a breakdown of how this deal changes when financed over 5 years:
| Component | Monthly amount | Total over 60 months |
| Finance instalment | R5,080 | R304,810 |
| Cash savings toward balloon | R1,850.00 | R111,000.00 |
| Total | R6,930 | R415,810 |
This calculation shows that financing a R300,000 car for 5 years can cost R415,810 or R6,930, while financing a deal like this without a balloon will cost around R6,485 per month, or about R393,250.
Deciding what works for your budget
According to WesBank, a balloon payment makes sense when consumers need more flexibility with their monthly budget.
However, the finance house warned that individuals also need to look beyond the immediate monthly repayments and consider the impact on their long-term budget.
“Consumers who understand what’s coming and plan accordingly are in a far stronger position than those who are surprised by it,” said Gaoaketse.
He explained that there are two main instances where motorists typically run into issues with their balloon agreement.
The first is simply not setting money aside over the course of the agreement to meet the balloon amount.
“If you know from the outset that a lump sum will be due, treating it like a savings target, even informally, gives you options when the time comes,” he said.
The three main options at the end of the finance term are to pay the cash settlement amount, trade in the vehicle, or refinance the balloon amount in a new deal with the finance house.
Gaoaketse explained that the second issue motorists run into is how they respond to financial difficulty during the loan term.
He said that when payments become hard to meet, the instinct for many people is to go quiet and hope the situation resolves itself before it becomes a formal problem.
“This is understandable, but it’s also where small difficulties can become larger ones,” explained Gaoaketse.
“It’s worth knowing that missing a single payment does not trigger immediate repossession or legal action.”
He said that financiers have processes in place precisely because arrears happen, and the goal on both sides is to find a workable path forward.
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