EXPLANATOR | Balloon financing: How to avoid the shock at the end of the repayment period of your car loan

Dealer Robert Marawa bought his Mercedes-Benz reportedly got a court order to void the deal and repossess the car in August.

Left Handed Shivambu/Gallo Image

It can happen to any of us.

You want the car of your dreams but the monthly payments are a little too high, so it makes sense to reduce them by opting for balloon financing.

That’s what happened to award-winning commentator and broadcaster Robbert Marawa recently, according to the weekend papers.

He was taken to court after the legendary sports commentator failed to settle the amount of the loan he owed to Mercedes-Benz’s internal financial services.

“The dealer has obtained a court order to void the agreement and repossess the car in August,” reports Municipal press.

“He was also allowed to seek an order to recover any outstanding balance on the loan following the resale of the car.”

The lump sum payment is a vehicle reimbursement option that many customers have regretted having.

Balloon financing means that part of the sale price – the balloon – is only payable at the end of the loan agreement.

This reduces the monthly payment but the lump sum payment is still pending. The ball can represent up to 20% or 35% of the sale price.

Unfortunately, many people forget about this important expense at the end of the loan contract and when it rolls over, they find themselves in a difficult situation.

WesBank’s Ghana Msibi told Drum about the options left to consumers who also find themselves in this situation.

Talk to your credit provider

Because many of us tend to forget about lump sum payments, many credit grantors will send you a notification 90 days before the end of your contract, reminding you of the amount still owed.

The credit grantor will also discuss options with you, which are usually:

1 Pay cash if you have cash

2 Apply for refinancing

3 Sell ​​or trade the car – although this is done through a car dealership and not through your credit provider.


This means taking out a brand new loan to pay off your outstanding amount.

The bank will therefore do a new credit check and you will have to make a formal request for the money.

Many credit grantors have application forms available online, so search for “refinance” on their website, download and complete the relevant forms, and submit them.

Or go to a branch and apply there.

In addition to the loan application form, you will need these documents: three months of payslips and bank statements; proof of address; a driving license ; and your identity card or passport.

Refinancing is usually granted over periods of 12, 24 or 36 months. The interest differs from one credit provider to another but must be within the limits stipulated in the national credit law.

Car financing falls under the “other credit arrangements” section of the law.

The interest rate is calculated as follows: repo rate + 17% per annum. That’s the maximum legal interest rate, says Matthys Potgieter of debt consolidation company DebtSafe. Credit grantors can charge a lower rate but not more.


If you choose to sell your car through a dealership, the dealership will settle any outstanding payments first (like the balloon) before releasing the balance to you.

If that amount is too small to cover the balloon, you can pay off part of it and refinance the rest. But that will probably leave you without a car.

You might consider selling privately, but you’ll still need to settle the lump sum payment from the proceeds of the sale.

The other option is to trade in the car at a dealership and replace it with another car. The car’s trade-in value can be used to cover the ball.

The dealer will pay the unpaid balloon amount directly to the credit provider as part of the trade-in process.

So if the dealer offers you R50,000 for your car, they will subtract the R40,000 you owe on the balloon, leaving you with R10,000.

But if the dealer offers you R30,000 you will have to find R10,000 to pay for your balloon.

This is where refinancing could come in. If you trade in your car to buy a new one, you will need to take out a new loan for the new car – and therefore owe more than the lump sum payment. have been.

– Additional reporting by Letitia Watson

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