Balloons normally conjure up images of birthday parties, happy times, and harmless fun. A balloon payment on a vehicle finance agreement, on the other hand, can potentially cost you a lot of money and destroy long-term wealth, writes Johann Rossouw of consumer financial education website,It is critically important to understand what a balloon payment is, how it works and the potential consequences of taking a balloon payment on your vehicle loan.
Sam’s monthly repayments over the five-year period will be R8,500, while Sam’s Bestie only pays R7,500. There is more to consider when it comes to a balloon payment. Let’s assume Sam’s Bestie does not have R80,000 available to settle his balloon payment at the end of the five-year term. After eight years of depreciation, Sam’s Bestie’s car is now only worth R170,000 – which means effectively a loss of R455,000 over the eight-year period.How to pop the balloon
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