WesBank notes rise in balloon payments for cars

New WesBank data reveals an increase in the use of the balloon payment option for vehicle finance as affordability pressures continue for SA car buyers.

The percentage of new finance deals including a balloon payment rose from 27% in July to 35% in August. The average size of these balloon payments also tracked upwards, increasing from 33% in July to 37% in August.

A year-on-year comparison, however, paints a more consistent picture, with the number of finance deals with a balloon option hovering about 35% in August 2024, while the average balloon size per deal was recorded at 37% in the same month.

Lebo Gaoaketse, head of marketing and communication at WesBank, explains that despite the increased uptake, the balloon payment option was often misunderstood. 

“There’s a common perception that balloon payments should be avoided at all costs, but they are designed to make monthly vehicle repayments more affordable, allowing customers to purchase a car when they need one,” he said.

Sales of new vehicles in SA grew for the 11th consecutive month in August and exceeded 50,000 units, with young people under 35 accounting for 45% of WesBank’s customer base.

Gaoketse said: "It’s crucial to remember that at the end of the finance term, the outstanding balloon amount must be settled before you can take full ownership of the vehicle.”

He stresses the importance of carefully reading the finance contract and being aware of the repayment terms.

Customers who choose a balloon payment have several options for managing the final lump sum:

• Saving: It is advisable to start saving for the balloon amount from the beginning of the contract to make the final payment more manageable.
• Refinancing: This is an option to settle the outstanding balance by taking out a new loan. A refinance is treated as a new loan agreement and is subject to credit checks. The interest rate will be based on the customer’s risk profile at the time or refinancing.
• Extension: This option extends the term of the existing balloon loan. Instead of a new loan, the original loan term is simply extended with a revised payment schedule to settle the balloon amount.

The difference between refinancing and an extension is that refinancing involves a new loan, while an extension modifies the terms of the existing loan.