A balloon payment is an inflated instalment that is due at the end of the credit agreement. According to the National Credit Act (NCA), a balloon payment can now be offered to any consumer on an instalment sale. It is rather advisable for consumers to be cautious and be aware of the balloon amount added to their credit agreement as they will be responsible for the lump sum payment at the end of the original finance term.
The balloon amount is traditionally associated with a projected estimate value, which is influenced by the length of the credit agreement, (i.e. 24, 36, 48, 60 or 72 months) and by the market sentiment towards the vehicle being financed. Since the risk associated with a balloon payment is borne by the customer, he/she is liable for the full balloon value at any point of termination of the contract.
It is important to note that all our finance products are regulated under the National Credit Act, which came into effect on 1 June 2007. To find out more about this Act and how it may affect you, read the National Credit Act Summary.
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