Alarming rise in Balloon car Payments in South Africa
If you use a balloon car payments plan to buy your car it can reduce your monthly payments.
Although this scheme makes cars more affordable to a lot of people, it requires that a large, final sum is due before the car changes ownership.
The final amount must be paid in cash or another monthly payment re-negotiated.
A Balloon car payments Scheme can burst in Your face
In many cases, this has resulted in the potential buyer having to sell the vehicle to make payment of the ‘balloon’ amount.
A balloon car payments plan may seem like a good option at the time of purchase, as the scheme can reduce monthly payments by as much as one-third. However, this means that the one-third is still outstanding at the end of the agreement.
As that can be several years from the date of purchase, the car buyer has no way of knowing what their financial situation will be like at that time, and so may not be able to afford to pay.
Balloon car payments On the Rise
Despite people having trouble paying for the ‘balloon’ plan, the car dealerships can sell more cars by using the system. Sales of cars using the balloon method of payment are increasing by as much as 10% per year.
Obviously, the dealerships are not concerned with the potential problems the car buyer may face in the future. As long as they sign the agreement today, the dealership makes its sale and is happy.
Serious concerns Exist with this System of Payment
Neil Roets, the CEO of Debt Rescue, a debt management company, has serious concerns about the increase in balloon agreements.
His concerns are that more people are finding themselves in financial trouble due to these agreements. Often leaving them unable to pay education costs for their children or facing other financial problems.
Although legal, he is concerned that many South Africans are not well enough educated to fully understand all the implications of such an agreement and the dealerships are using this to their advantage.
The future’s Not what it Used to be
Roets says that many buyers using the balloon system believe that their financial situation will improve. And by the time the final payment is due they can meet it. But often that is not the case, and so they find themselves in a financial crisis.
Roets is now urging that the education system and individual states, fully educate South African’s on the potential implications of making a balloon agreement. Education should emphasise the pitfalls associated with a balloon accord.
If Roets concerns get ignored, many more South Africans could find themselves in severe financial problems.
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