Car Debt - Balloon Payments

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jnvdh06

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It feels like I am currently in a difficult situation vehicle wise.

I am a medical rep and drive around 30-40k km a year.

Two years ago I purchased a Ford Ranger, which I am very happy with, but stupidly opted in for a balloon payment. (I also loaded some cash I owed from my previous vehicle)
I currently have around 75k km on the clock, which is still low.

Over the last few months, the thought of the balloon payment has really started bothering me.

I still have 48 months of repayments left and then I have to pay the balloon of around R150k.

I have thought of trading in and purchase a cheaper vehicle but I still have around R80k shortfall that is going to have to be loaded on the new vehicle.

The problem also is we live quite an outdoor lifestyle and we have a camping trailer which needs a big tow vehicle, so I smaller vehicle won’t work.

The other option is I pay off the bakkie for 48 months and then refinance the balloon?

My monthly repayment is around R7k per month, which isnt too bad.

If I buy a cheaper vehicle and finance it over 4 or 5 years then repayments are around R5k per month, so it isnt saving loads of money.

So I dont really know what to do at this stage.

Sorry if I am rambling. Tried to explain the situation the best I can.
 
What is the Ranger's worth at the end of the contract? If its hopefully near R150k then sell it at the end of the contract to pay back the balloon. If its shorter, you will need to gap it somehow.

I've often taken Balloon but I've always sold before contract is up and usually it squares-out. Which i'm ok with as I see the car as more of a "lease" than owning it.

Your problem was loading. Its far more dangerous than the balloon because the balloon is a piece off the pie of the car's value. Loading is adding more pie onto the pie without its value increasing.
I've been burnt before with loading and tend to avoid it. Its also considered "illegal" by Banks but they tend to overlook the methods used such as inflating options prices etc.

Someone may disagree, but i think your biggest problem was loading, not that you took a balloon.
 
Balloons are normally good if you have something like a car allowance that needs to go to a vehicle ie: it must always be of a certain standard etc but if you intent to own the vehicle, you are jsut postponing pain.

There is also the option of paying extra in or into a side account and let it get interest ( Tyme goal save would work nicely here ).

One thing, and maybe its NOT a popular opinion BUT I was very bitter having paid off a car and some does smacks it five months later and book value is below writeoff so got paid out sure but had to use the funds to replace and it was a low use car so no ways I would get the same level of care/maintenance. For a vehicle, I would weigh the options of interest reduction paying directly vs using the funds in some other offset ( homeloan, tyme etc ) because if something happens , your insurance will cover it as well as any shortfall ( which hopeully you would have anyway ).
 
I had a car with a balloon payment paid it for 4 years and then refinanced it without a balloon payment, it worked out in the long run I will save about 50k. Maybe try looking at something like that if you can get a fix interest rate would be a bonus. Did that in 2020 when I moved from MFC to Westbank.
 
jnvdh06 said:
The other option is I pay off the bakkie for 48 months and then refinance the balloon?
Click to expand...
I would imagine this being the best option. Pay it off ASAP, pay even more if you can i.e. bonus, commission etc.

And drive the thing until it explodes, which will be a while, I mean 75k km is very low.
 
Just out of curiosity, is 75k km in 2 years really low. But like others say drive it until it cant go anymore.

I was told by FI at dealer to at least keep the vehicle for 3 or more years before trading it if one takes a balloon.
 
Balloon payment is not always that bad, as long as you know what you're getting yourself into from the beginning, something which no bank or car dealership tells you. I did my research before I purchased my first vehicle and from day one I started saving up so that I have the full balloon payment once the 6 year term comes to an end, I actually ended up saving way more in the end and used the rest for a deposit on a new vehicle, because of that the new vehicle now has no balloon payment. :) I also still have my old vehicle which I'll keep driving as well until it falls apart.

If you can save up then do so, even if you only get to half of the balloon payment by that time. Refinance the rest.
 
if your a REP isn't leasing a better idea then, get a nice car, and pay X and when it starts getting old, return it and get another.

if I drove a lot, id definitely consider it.
 
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tough one. in my younger days i bought a yaris with balloon. after 4yrs i traded it in, value was so good i managed a decent deposit, car held value really well. so balloon can work for you. a Ranger, not so sure. also R7k is alot considering balloon!
 
You will get better advice if you can share purchase price of the Ranger, interest rate, term and repayment amount....oh and current balance...

That way you can weigh up what you could replace it with vs keeping it etc..
 
nazmo said:
tough one. in my younger days i bought a yaris with balloon. after 4yrs i traded it in, value was so good i managed a decent deposit, car held value really well. so balloon can work for you. a Ranger, not so sure. also R7k is alot considering balloon!
Click to expand...
Have you seen the price of cars lately?
 
eg2505 said:
if your a REP isn't leasing a better idea then, get a nice car, and pay X and when it starts getting old, return it and get another.

if i drove a lot, id definitely consider it.
Click to expand...
That comes with it's own challenges, especially since he is using the car for work and personal use, staying within the stipulated mileage is easy if the car is only for work but you don't want to be calculating kilometres before going on holiday.
 
dannyjmp said:
Just out of curiosity, is 75k km in 2 years really low. But like others say drive it until it cant go anymore.

I was told by FI at dealer to at least keep the vehicle for 3 or more years before trading it if one takes a balloon.
Click to expand...
I've got 50K on my clock after almost 6 years :P
 
werny said:
Balloon payment is not always that bad, as long as you know what you're getting yourself into from the beginning, something which no bank or car dealership tells you. I did my research before I purchased my first vehicle and from day one I started saving up so that I have the full balloon payment once the 6 year term comes to an end, I actually ended up saving way more in the end and used the rest for a deposit on a new vehicle, because of that the new vehicle now has no balloon payment. :) I also still have my old vehicle which I'll keep driving as well until it falls apart.

If you can save up then do so, even if you only get to half of the balloon payment by that time. Refinance the rest.
Click to expand...
Question, why not put that money saved up each month into the loan and reduce capital, thus less interest, surely the loan rate will be higher than wherever you're putting the money saved?
This assumes that vehicle loans work like home loans, I'm struggling to find some info on how vehicle interest gets calculated and paid.
 
F1 Fan said:
You will get better advice if you can share purchase price of the Ranger, interest rate, term and repayment amount....oh and current balance...

That way you can weigh up what you could replace it with vs keeping it etc..
Click to expand...
Original finance amount - R470k
Settlement Balance - R370k
Trade value - R290k
Interest - 8.25%
Term - 48 months left (initial term 78 months)
 
nazmo said:
tough one. in my younger days i bought a yaris with balloon. after 4yrs i traded it in, value was so good i managed a decent deposit, car held value really well. so balloon can work for you. a Ranger, not so sure. also R7k is alot considering balloon!
Click to expand...
It sucks knowing that as a rep, I will probably have car debt until I retire. Lol. I really hate debt.

It sound better to me to get a cheaper car around R250-300k and try to pay it off in 4 years.

But like I said due to our lifestyle it is gonna be difficult to be without a bakkie.
 
The reality is that cheaper is not cheap anymore. Cars got stupid expensive. To find something in the same size and value might not be possible. Might be better to just keep the Ranger if you don't have any other issues with it and start saving up the balloon.
 
RedViking said:
The reality is that cheaper is not cheap anymore. Cars got stupid expensive. To find something in the same size and value might not be possible. Might be better to just keep the Ranger if you don't have any other issues with it and start saving up the balloon.
Click to expand...
True. Until the maintenance becomes too expensive it is probably wiser to just keep it.
 
dannyjmp said:
Just out of curiosity, is 75k km in 2 years really low. But like others say drive it until it cant go anymore.

I was told by FI at dealer to at least keep the vehicle for 3 or more years before trading it if one takes a balloon.
Click to expand...
No it's not low, that's on the high end of driving, though that is only 100km a day. Low on 2 years would be under 50k.
 
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