To balloon or not?

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.

.
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The best deal in my opinion is to get the highest trade in value you can, then offer the car to your friends for slightly more but well under the supposed market value.

You would have taken the trade-in deal anyway, you score a bit more and your friend scores a good deal as well. Everyone wins.

Twice now in my life I've been shafted by friends trading in cars or bikes without a word and I would have happily given them 10% more if only they had told me about it.

I'd much rather buy a car or bike of which I know the full and entire history than take my chances with anything else.
 
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.
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Just worked for me. Made R40K more than they offered on trade by selling private.
Go in and ask what BMW will give you to trade it in, put 20-40K on top of that, and see if you get anyone to bite on Gumtree. If you don't come right you can always fall back on the trade.
 
SauRoNZA said:
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.
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But how much better is the rate though?

Say a car is R450k, my bank will give me prime less 2. If I put down a deposit of R100k and get R130k for my current vehicle and finance R220k, I'm still getting prime less 2. Where is the benefit?
 
SauRoNZA said:
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.
Click to expand...

This is sage advice
 
Brenden_E said:
This isn't always true. If you plan to pay in a big deposit on an expensive car, you might save more in interest on the first debit than you make back on a few percentage points of interest. Especially if you plan to pay it off quickly.

They won't allow you to make the payment before the first debit goes off.
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Example for R500 000 car using rough guestimate figures (stupid to buy such expensive car in my opinion anyway)

1. No big deposit or lump sum payment afterwards:

Get lower interest rate (say 9.5%) due to them financing most/all of it: R10 000 pm:
First month R8000 goes to interest, 2000pm to capital repayment
Second month R7900 goes to interest, 2100pm to capital repayment
And so it goes on

2. Big lump sum payment afterwards:

Get lower interest rate (say 9.5%) due to them financing most/all of it: R10 000 pm:
First month R8000 goes to interest, 2000pm to capital repayment
R200 000 Lumpsum goes in
Second month R5500 goes to interest, 4500pm to capital repayment and final payment date much shorter OR the monthly payments drop and it goes over the same term say total payment is say R6000 per month.
And so it goes on and big saving on interest

3. Big deposit:

Get standardish interest rate (say 10.5%) due to them financing less and they still want good profits (R6000pm):
First month R4100 goes to interest, 900pm to capital repayment
Second month R4080 goes to interest, 920pm to capital repayment.
And so it goes on

That interest you pay in month 1 of Nr2, will still be less overall than the interest you pay in Nr3 due to the higher interest rate over the term, in my opinion.
 
supersunbird said:
Example for R500 000 car using rough guestimate figures (stupid to buy such expensive car in my opinion anyway)

1. No big deposit or lump sum payment afterwards:

Get lower interest rate (say 9.5%) due to them financing most/all of it: R10 000 pm:
First month R8000 goes to interest, 2000pm to capital repayment
Second month R7900 goes to interest, 2100pm to capital repayment
And so it goes on

2. Big lump sum payment afterwards:

Get lower interest rate (say 9.5%) due to them financing most/all of it: R10 000 pm:
First month R8000 goes to interest, 2000pm to capital repayment
R200 000 Lumpsum goes in
Second month R5500 goes to interest, 4500pm to capital repayment and final payment date much shorter OR the monthly payments drop and it goes over the same term say total payment is say R6000 per month.
And so it goes on and big saving on interest

3. Big deposit:

Get standardish interest rate (say 10.5%) due to them financing less and they still want good profits (R6000pm):
First month R4100 goes to interest, 900pm to capital repayment
Second month R4080 goes to interest, 920pm to capital repayment.
And so it goes on

That interest you pay in month 1 of Nr2, will still be less overall than the interest you pay in Nr3 due to the higher interest rate over the term, in my opinion.
Click to expand...

No, it depends on how big the deposit is and how quickly you pay it off. That's why you have to look at it on case by case. For example, more than half the value of the car in deposit, paid over a year, you'll save more to finance less.

We just bought a ~R500K car and it'll be paid off in a year. Depends on your personal situation what is stupid.
Since this is a balloon thread, if you have to take a balloon it's probably stupid :)
 
Bottom line is balloon payment or residual are both bad ideas. If you can't afford a car without it,you need to look at cheaper cars.
 
supersunbird said:
Example for R500 000 car using rough guestimate figures (stupid to buy such expensive car in my opinion anyway)

1. No big deposit or lump sum payment afterwards:

Get lower interest rate (say 9.5%) due to them financing most/all of it: R10 000 pm:
First month R8000 goes to interest, 2000pm to capital repayment
Second month R7900 goes to interest, 2100pm to capital repayment
And so it goes on

2. Big lump sum payment afterwards:

Get lower interest rate (say 9.5%) due to them financing most/all of it: R10 000 pm:
First month R8000 goes to interest, 2000pm to capital repayment
R200 000 Lumpsum goes in
Second month R5500 goes to interest, 4500pm to capital repayment and final payment date much shorter OR the monthly payments drop and it goes over the same term say total payment is say R6000 per month.
And so it goes on and big saving on interest

3. Big deposit:

Get standardish interest rate (say 10.5%) due to them financing less and they still want good profits (R6000pm):
First month R4100 goes to interest, 900pm to capital repayment
Second month R4080 goes to interest, 920pm to capital repayment.
And so it goes on

That interest you pay in month 1 of Nr2, will still be less overall than the interest you pay in Nr3 due to the higher interest rate over the term, in my opinion.
Click to expand...

Although I understand your point of view it's very circumstantial and highly dependant on the interest rates which I've seen fluctuate as much as 3% without deposit vs with deposit.

But it is food for thought.

I also wouldn't buy a car for 500k. Well not financed at least. Then again my mark was always 200k and with inflation and such I've needed to up that.

Then again I would spend 200k on a bike which most people think is crazy.
 
assuning you are buying the car to KEEP for GOOD::

- Get the baloon (maximum if possible).
- Get credit shortfall insurance (in addition to normal comprehensive insurance) for incase the car gets written off.
- Open an investment account & deposit all the *extra* money you wanted to pump into the new car - dont put the money into the car account incase the car gets written off - that money will be gone forever.
- When the car reaches its final month - withdraw the money from the investment account & settle your car.
 
ice_cubes said:
assuning you are buying the car to KEEP for GOOD::

- Get the baloon (maximum if possible).
- Get credit shortfall insurance (in addition to normal comprehensive insurance) for incase the car gets written off.
- Open an investment account & deposit all the *extra* money you wanted to pump into the new car - dont put the money into the car account incase the car gets written off - that money will be gone forever.
- When the car reaches its final month - withdraw the money from the investment account & settle your car.
Click to expand...

Good advice but I suspect that 95%+ of people purchasing a vehicle with a balloon payment don't have the extra money for the shortfall insurance or any extra to invest.
Look at all the people who finance the purchase of a new vehicle and then immediately cancel the insurance because they can't afford it.
It's flipping reckless but this seems to be standard practice for people who try to live beyond their means.
 
ice_cubes said:
assuning you are buying the car to KEEP for GOOD::

- Get the baloon (maximum if possible).
- Get credit shortfall insurance (in addition to normal comprehensive insurance) for incase the car gets written off.
- Open an investment account & deposit all the *extra* money you wanted to pump into the new car - dont put the money into the car account incase the car gets written off - that money will be gone forever.
- When the car reaches its final month - withdraw the money from the investment account & settle your car.
Click to expand...

Really think your investment is going to grow at greater than the interest rate you're paying on your car finance?
 
Sinbad said:
Really think your investment is going to grow at greater than the interest rate you're paying on your car finance?
Click to expand...

The idea behind this is to get a car at *discounted interest*

You buy a 100k car & finance the whole amount = 100k x 10% interest pa for 6yrs
You buy a 100k car but only finance 70% of it will be = 70k x 10% interest pa for 6yrs. Which means the balance of the 30K is *interest free*


With balloon payment you get the same car , at 10% pa..but the amount financed is less = the interest paid over the term is also less. So you dont pay the interest on the entire 100k, you pay only on the financed amount (around 70k - if you take 30% balloon payment)

I call it leverage - use someone else's money to grow your own money...which in this case - to get your *dream car*. And lock your money into an investment account for those 6yrs. If the car miraculously survives being stolen or written off - you settle the car in full at the end of those 6yrs. If it gets stolen or written off - at least you would've only spent (lost) on 70k instead of the entire 100k.
 
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ice_cubes said:
The idea behind this is to get a car at *discounted interest*

You buy a 100k car & finance the whole amount = 100k x 10% interest pa for 6yrs
You buy a 100k car but only finance 70% of it will be = 70k x 10% interest pa for 6yrs. Which means the balance of the 30K is *interest free*


With baloon payment you get the same car , at 10% pa..but the amount financed is less = the interest paid over the term is also less. So you dont pay the interest on the entire 100k, you pay only on the financed amount (around 70k - if you take 30% baloon payment)
Click to expand...

You still pay interest on the balloon amount, no?
 
ice_cubes said:
The idea behind this is to get a car at *discounted interest*

You buy a 100k car & finance the whole amount = 100k x 10% interest pa for 6yrs
You buy a 100k car but only finance 70% of it will be = 70k x 10% interest pa for 6yrs. Which means the balance of the 30K is *interest free*


With balloon payment you get the same car , at 10% pa..but the amount financed is less = the interest paid over the term is also less. So you dont pay the interest on the entire 100k, you pay only on the financed amount (around 70k - if you take 30% balloon payment)

I call it leverage - use someone else's money to grow your own money...which in this case - to get your *dream car*. And lock your money into an investment account for those 6yrs. If the car miraculously survives being stolen or written off - you settle the car in full at the end of those 6yrs. If it gets stolen or written off - at least you would've only spent (lost) on 70k instead of the entire 100k.
Click to expand...

You're wrong. You pay interest on the entire outstanding amount including the balloon.
 
Sinbad said:
You're wrong. You pay interest on the entire outstanding amount including the balloon.
Click to expand...

I'm looking at buying a vehicle this week and also want to know if this is the case?

I've got a good chunk of change, in addition to my trade in and wondering if it would be better to take a balloon and keep the money in my investments or use it as a deposit upfront (or after the 1st month) and not take a balloon.
 
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