Balloon Payment - Good or Bad Idea?

akescpt said:
wise how? what did u buy?
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We did put down the 10% deposit, wanted to put down 20%, but the financial advisor said "not to invest more than 10% into a liability".

VW Polo 1.6 Comfortline. After 2 and a half years the value of the vehicle coverted the full outstanding amount, or put differently, we broke even. We did take a chance in the beginning. We were able to afford the the 1.4 Trendline with no residual or 1.6 Comfortline with residual. Both cars had exactly the same installment with the 1.6, R20 more.

A car has 'a trade value'. As soon as that trade value is bigger than the full settlement amount, then you're 'in the clear'. Before that, pay the extra R80 to your insurance to cover the difference between trade/market value and settlement amount...thats what we did...
 
Fern9do said:
I think the car I want has a good resale value judging by what the older models are currently going for.
Car in question is a 2007 VW Polo 1.6
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Yes, polos do have quite good resale values. My wife paid a 100K for hers 4.5 years ago and the dealer offered us 65K on a trade in recently. We did put some extras in though.

If you are planning on changing your car every 3 years go the residual route (not more than 30%), and dont pay a deposit. (Like has been mentioned on here earlier). Buying a car on residual may even help you live a bit easier.

If you want to "own" the car after 5 years than dont go the residual route.

I have decided that I no longer want to own a car. I did this before and it was it was really bad decision for me. I now have a car that is worth less than my tv. So much for having an "asset". Not to mention I am driving an old outdated car that costs me far more in maintenance and services than a new car would. Also my car is far less safe than most newer cars. Now for me to get a nice car, my installment is going to be extremely high as I have nothing to trade in against it.
 
iceman23 said:
So much for having an "asset". Not to mention I am driving an old outdated car that costs me far more in maintenance and services than a new car would. Also my car is far less safe than most newer cars. Now for me to get a nice car, my installment is going to be extremely high as I have nothing to trade in against it.
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Depends on the vehicle but in most cases an old car is still cheaper to fix than the repayments on a new car.
The problem is something breaks and people have to spend 10K or 20K to fix it and they then think that it will be cheaper to own a new car however they don't add up all those monthly payments for a new car.
It's still cheaper (but not nicer) to buy a second hand vehicle and run it into the ground over a 15 year period (300000 to 500000 km).
 
You will pay more when using a residual value as compared to not.

Consider that for a R200,000 car financed over 60 months at 10% interest, the monthly instalment is R4,249.41 (Total payments = R254,964.54 over 60 months).

If you take a 15% residual, the monthly instalment is R3,862.00 (Total payments = R231,719.86). You then have to pay the R30,000 at the end, making a grand total of R261,719.86. Some R6,755.32 more.
 
milomak said:
You will pay more when using a residual value as compared to not.

Consider that for a R200,000 car financed over 60 months at 10% interest, the monthly instalment is R4,249.41 (Total payments = R254,964.54 over 60 months).

If you take a 15% residual, the monthly instalment is R3,862.00 (Total payments = R231,719.86). You then have to pay the R30,000 at the end, making a grand total of R261,719.86. Some R6,755.32 more.
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True......if you plan on keeping the car....

or you take the 15% residual...pay for 36 months..... then you owe the bank about +/-R123 000. If you did not put a deposit down, you must then just hope that your car's value has not depreciated by more than 40%....sometimes the dealer will depreciate your car by up to 60% when you trade it in...ouch...

seriously, don't buy with residual if you plan on keeping the car FOREVER.....if you want to swop within three years, and BOOST your credit rating, swop cars.....every three years....with residual...
 
... R6,755.00 loss over 5 years if you keep the car the full term isn't bad at all - and you're paying R400.00pm less.

You could put R400.00pm saving into an RA or invest in shares.

At the end of the day, I fail to see why the overwelming answer is stay away.
 
Paul_S said:
Depends on the vehicle but in most cases an old car is still cheaper to fix than the repayments on a new car.
The problem is something breaks and people have to spend 10K or 20K to fix it and they then think that it will be cheaper to own a new car however they don't add up all those monthly payments for a new car.
It's still cheaper (but not nicer) to buy a second hand vehicle and run it into the ground over a 15 year period (300000 to 500000 km).
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True, that it is cheaper to fix an old car than having a new car. But you are still spending money on an "old" car. A car that when you run to the ground is worth nothing and you have to start from scratch all over again which requires far greater sacrifices. Sort of what I am going through now.
 
iceman23 said:
True, that it is cheaper to fix an old car than having a new car. But you are still spending money on an "old" car. A car that when you run to the ground is worth nothing and you have to start from scratch all over again which requires far greater sacrifices. Sort of what I am going through now.
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I think the way to get around that problem is to save the money from having a payed for car and not paying monthly installments and interest, and when you need to get a new car you can pay a huge deposit or perhaps even buy is cash (saving on paying interest again).

I'm not is saying drive a 20 year old car (unless you like that sort of thing or its a classic). Maybe keep your payed off car till it is around 10 to 12 years old (saving 5 to 7 years of installments and interest) and then buy a nice new one again.
 
that would be the best thing to do yes but it is the most difficult :)
 
so i compiled a little excel spreadsheet for comparing the financing of a car with and without residual.

the car costs R400k.
extras amount to R10k.
deposit of R50k.
trade-in of R150k.
interest rate of 8%.
for 60 months.

http://mybroadband.co.za/photos/showphoto.php/photo/16171/title/residual-vs-ist/cat/500
ISTvsRES.jpg


the results surprised me, because it seems that the higher the residual is, the less you end up paying, even if you keep the car for the full 60 months and pay the residual in full. am i misisng something? :confused:
 
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Yes... you are assuming everyone saves the difference... very few people if any do.
 
ToxicBunny said:
Yes... you are assuming everyone saves the difference... very few people if any do.
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I must add...doing an analysis like that will have you choosing a car that you CAN afford....take a residual and actually saying the monthly difference in some investment account....interesting...

but, considering the R50k deposit and R150k trade-in, u dumped R200k into a car.....I find this insane...

would you not rather have the R200k sit in bank than a car..?
 
@imajin, I'm into academics....

I would say, redo the calculation, and this time. include the initial input costs...
 
Dolby said:
... R6,755.00 loss over 5 years if you keep the car the full term isn't bad at all - and you're paying R400.00pm less.

You could put R400.00pm saving into an RA or invest in shares.

At the end of the day, I fail to see why the overwelming answer is stay away.
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i was neither going one way or the other. just putting info out there.
 
Relax milo - not everything is a direct attack on you.

The post is in general taking your figure as a base.
 
This is an old thread but thought I would add my findings. There is a debate if a balloon interest is higher than non-balloon interest. If one uses the Wesbank calculator one can play with the figures but what it shows is that there is more interest payable if balloon is selected.

Take R100 000 over 60 months with 10% interest and 0% balloon then note the interest paid. If the theory of interest being charged on the amount of R100 000 is correct then changing the balloon percentage should have no impact on total interest if R100 000 is still the capital to be paid. This, however, is not the case. One will see that as the balloon percentage increases and so does the total interest paid and on the right hand side one can see the total payable also increases.

http://mybroadband.co.za/vb/showthread.php/194657-Balloon-Payment-Good-or-Bad-Idea/page7

Thoughts?
 
SouldaFusion said:
This is an old thread but thought I would add my findings. There is a debate if a balloon interest is higher than non-balloon interest. If one uses the Wesbank calculator one can play with the figures but what it shows is that there is more interest payable if balloon is selected.

Take R100 000 over 60 months with 10% interest and 0% balloon then note the interest paid. If the theory of interest being charged on the amount of R100 000 is correct then changing the balloon percentage should have no impact on total interest if R100 000 is still the capital to be paid. This, however, is not the case. One will see that as the balloon percentage increases and so does the total interest paid and on the right hand side one can see the total payable also increases.

http://mybroadband.co.za/vb/showthread.php/194657-Balloon-Payment-Good-or-Bad-Idea/page7

Thoughts?
Click to expand...

Don't take a balloon payment :)
 
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