To balloon or not?

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feo

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Hi there

I'm in the market for a new vehicle and did some shopping this morning. Mainly looked at German stuff, BMW, Merc and Audi.

I currently own a 2010 BMW 120i hatchback 5-door and I'll trade that in and maybe put down a R50-100k deposit, most likely for the latest 120i M Sport.

All the dealerships gave the option for a balloon but I've always been told to stay away from them.

Could someone explain if/when it is worth it to take a balloon payment?

I do about 15,000km per year (78,000km over the 5 years I've owned the car) so would it be worth it to take a balloon to lower the installment?

Any pros and cons I should know of?

Thanks
 
The only reason to take a balloon payment is if you want to rent the car i.e pay installments for 3 years and then trade it in on a newer model. you lose your deposit every time and will be paying installments for the rest of your life but you get a new car with motorplan every 3 years.

If this is not what you want to do(I wouldn't recommend it,huge waste of money) then stay FAR away from balloon payment/residual IMO.
 
Baloon is generally to make the car more affordable. I would opt no baloon, although I would also consider if you need a new car and if its not worth just extending your motor plan on your current car. 2010 is still fairly new.
 
If you buy a Land Cruiser that will last 20 years, sure.
 
phoenix99 said:
The only reason to take a balloon payment is if you want to rent the car i.e pay installments for 3 years and then trade it in on a newer model. you lose your deposit every time and will be paying installments for the rest of your life but you get a new car with motorplan every 3 years.

If this is not what you want to do(I wouldn't recommend it,huge waste of money) then stay FAR away from balloon payment/residual IMO.
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So it's better then to just save up a bit more and put down a bigger deposit upfront when buying in order to reduce installments?

What about if it's a smaller balloon amount? Like maybe 10% or so, do many people do this in order to reduce your monthly payment?
 
Avoid it if you can. It reduces the amount you pay each month but screws you over in the bigger picture.
 
feo said:
So it's better then to just save up a bit more and put down a bigger deposit upfront when buying in order to reduce instalments?

What about if it's a smaller balloon amount? Like maybe 10% or so, do many people do this in order to reduce your monthly payment?
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Yes, better to sit tight and put down a bigger deposit, having said that, a 10% balloon is about the safest one, if you are desperate for a car now - still risky, no matter what size balloon you go - you never know what will happen in the next few years, that might just reduce the value of your car.

Last year, I had a lady bring in an immaculate looking BMW 3 series, and she owed a whack because of a balloon - did an HPI check before giving her a price, to find that she had just spent R 130 000 and some change at her local panel beater - we didn't want the car after that, but if we had gone for it we were looking at about half book and miles behind what she owed.

Just not worth the risk, quite frankly - effectively you are attempting to buy something that you really cannot afford, and that's just not clever.
 
Fazda said:
Yes, better to sit tight and put down a bigger deposit, having said that, a 10% balloon is about the safest one, if you are desperate for a car now - still risky, no matter what size balloon you go - you never know what will happen in the next few years, that might just reduce the value of your car.

Last year, I had a lady bring in an immaculate looking BMW 3 series, and she owed a whack because of a balloon - did an HPI check before giving her a price, to find that she had just spent R 130 000 and some change at her local panel beater - we didn't want the car after that, but if we had gone for it we were looking at about half book and miles behind what she owed.

Just not worth the risk, quite frankly - effectively you are attempting to buy something that you really cannot afford, and that's just not clever.
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Maybe another related question which I need clarity on Fazda, is a balloon and residual the same thing? Guy at BMW said that there's a slight difference, can't really remember what he said.
 
feo said:
Maybe another related question which I need clarity on Fazda, is a balloon and residual the same thing? Guy at BMW said that there's a slight difference, can't really remember what he said.
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Very much the same thing for all intents and purposes.

Reps, for example will buy on Residual for tax purposes, whereas the average guy buying with a balloon is simply trying to pay less each month.

Basically if you can claim most of your money spent on your car for work purposes, then it's worth it, otherwise forget it.
 
Dont think anyone gives residual anymore.
But I understand
1. balloon = your risk of car value below amount owed while
2. residual = banks risk if car below amount owed.
 
Last edited:
adielk said:
Dont think anyone goves residual anymore.
But I understand
1. balloon = your risk of car value below amount owed while
2. residual = banks risk if car below amount owed.
Click to expand...

It's only the Bank's risk if the car is bought with a buy back option - that's the one I was talking about above where it's a repmobile.
 
Fazda said:
Very much the same thing for all intents and purposes.

Reps, for example will buy on Residual for tax purposes, whereas the average guy buying with a balloon is simply trying to pay less each month.

Basically if you can claim most of your money spent on your car for work purposes, then it's worth it, otherwise forget it.
Click to expand...

So then I guess for me (and pretty much anyone else looking to upgrade), the best thing to do is to sell your car privately and get a value higher than trade (as opposed to trading in with the dealership) & also put down a bigger deposit (as opposed to taking a balloon)? There's so many questions I have but let's restrict this thread to balloons only.

adielk said:
Dont think anyone goves residual anymore.
But I understand
1. balloon = your risk of car value below amount owed while
2. residual = banks risk if car below amount owed.
Click to expand...

Yeah that's what the guy said, still not sure I understand it fully though.
 
feo said:
So then I guess for me (and pretty much anyone else looking to upgrade), the best thing to do is to sell your car privately and get a value higher than trade (as opposed to trading in with the dealership) & also put down a bigger deposit (as opposed to taking a balloon)? There's so many questions I have but let's restrict this thread to balloons only.



Yeah that's what the guy said, still not sure I understand it fully though.
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Yes, that's about it, however, private sales don't really work that well with cars that are over 100k, as very few people have that sort of cash lying around - or if they do, they would rather go to a dealership where some sort of guarantee is provided.
 
Fazda said:
Yes, that's about it, however, private sales don't really work that well with cars that are over 100k, as very few people have that sort of cash lying around - or if they do, they would rather go to a dealership where some sort of guarantee is provided.
Click to expand...

What sort of guarantee?

I would think the only thing to consider was motor plan and that stays the same whether you're buying privately or from a dealer directly, or am I mistaken?

I did find a guy who buys and sells cars privately and he offered me about R13k over the trade in price for my car (R117k on trade-in vs R130k from him) [trade and book are R123k and R147k respectively] so I'm not sure if I'm being low balled by him.
 
If you're being offered above trade on a BMW then take it. It's dumb but most sell for less than what's quoted as trade value.
 
rorz0r said:
If you're being offered above trade on a BMW then take it. It's dumb but most sell for less than what's quoted as trade value.
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+1

Also Fazda 130k is not alot these days when it comes to panel beating costs. A modern headlight alone could set you back about 15k each
 
You are looking at this the wrong way.

Don't try to decrease your instalment. Try to increase it by making the term shorter or overpaying it every month so that you win on interest.

Also don't offer the massive deposit up front. Keep quiet about it and give them the usual 10% or the least required.

The more you borrow the better the interest rate. Then after a month in drop the rest of the deposit money into the account.
 
feo said:
What sort of guarantee?

I would think the only thing to consider was motor plan and that stays the same whether you're buying privately or from a dealer directly, or am I mistaken?

I did find a guy who buys and sells cars privately and he offered me about R13k over the trade in price for my car (R117k on trade-in vs R130k from him) [trade and book are R123k and R147k respectively] so I'm not sure if I'm being low balled by him.
Click to expand...

CPA means that any dealership needs to offer a six month warranty.

Private means nothing at all.
 
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