Avoid residual payments

2012-02-11 10:42

A residual payment, commonly known as a balloon payment, is when you agree to pay a final lump sum on the vehicle at the end of the payment period.

It is commonly used in vehicle finance as a way of reducing monthly instalments and is represented as a percentage of the purchase price.
You will remain completely liable for the residual payment irrespective of what happens to your vehicle during the terms of the contract.

At the end of the financing period, you need to have the cash available to settle the outstanding amount. And if not, you will have to refinance the car and extend your repayment period further pushing up the cost of the car.

According to Chris de Kock, executive head of sales and marketing at WesBank, about 65% of customers
on residual payment structures will ask the bank to re-finance the payment as they do not have the cash to settle it.

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