Financial institutions have a way of coaxing you in to things you never would have signed for had you understood, let alone known where to find and read, the fine print. We do not all understand the jargon they spurt out and they do this ‘you only get this offer this one time and then it leaves with me’ talk to try to catch you off guard and get you to sign. That is the catch phrase you should learn to listen for from many different professionals. When they say that tell them to jog right on! They do not have your best interest at heart, they are more concerned with their own benefits when they try to get you to agree to this so-called ‘deal’ or ‘bargain’.
Carte Blanche Consumer has been unmasking these calculated businesses one by one and going through their business practices with a fine tooth comb while taking in to consideration customer complaints. All I can say is bravo! It is about time businesses are held accountable for ripping their customers off and a bank is a business. Do you think a business wants to lose money? I remember needing finance to purchase a new motor vehicle. I had a decent deposit and only needed a small amount from the bank which I thought could serve as a nice little credit history for me. Do you think I could get a loan without a ridiculous interest rate? Not a chance. I have a property in my name and that did not even count as collateral even though it could have paid the car back several times had anything gone wrong and there is nothing owing on the property.
Then I was offered what I thought sounded like a dream come true! I could get my car and pay back a small amount every month that I could actually afford. The balloon payment sounded like the ideal way to go. That was of course until I spoke to other people and got their opinions. The banks wanted me to come in and sign it today, but I thought I would rather be cautious and find out more. What i found out is that a balloon payment is the worst idea ever invented and banks should not be permitted to offer it to anyone. I do not know how you can expect someone earning a pitiful South African salary to suddenly fork out R 35 000 in one go after 3 years or 5 years, depending on your term. If you could not afford that bulk payment before how do you expect to afford it in 3 years time?The banks were of course trying to sell this idea that a balloon payment is to make things easier for you now so you can have what you want. So for now it is easier, but a couple of years down the line you have to fork out all your savings to pay back to the bank.
When I hesitated they told me I would probably want to buy a new car 3 years down the line and then they incorporate what you still owe in to a new balloon payment structure. The main point is that when your term is up and you have to pay that one last final sum, where are you going to get it from? Another loan from the bank you will then need to pay off again? No one should have that kind of financial stress to deal with, because financial stress is something that can suck you in a black pit of despair. Ever head about companies going bust and the CEO’s offing themselves? Take a look at Enron. Yes, a balloon payment offers a lower interest rate and they may give you the opportunity to save more money for now, but at the end of the day you may have to fork out a large sum of that money in the end to make your final bulk payment.
Think to yourself; what happens when you cannot pay back your debt? That is exactly what that bulk payment is, a large sum of debt against your name and if you cannot pay it back there are consequences. The word you are looking for is blacklisted. It is listed as bad debt and for the rest of your life you will be considered a financial risk. Whenever anyone takes a look at your credit history it will come up. A credit monitor study by the NCR shows that since June 2007 until June 2010, the percentage of consumers with bad debt has risen from 36% to 47%. To make that fact even scarier that means that from June 2007 there were 5.5 million consumers who had bad debt and in June 2010 it had increased to 8.3 million, which means that it had increased by 2.8 million consumers over 3 years. It is happening and the important thing is to not become a statistic!
To sum it up you basically have to pay off your loan in one big chunk after paying back many little chunks. What they focus on when they are trying to get you to take the balloon payment and what gives it its allure is that you can have what you want and pay smaller installments with less interest. If you foresee your self earning a fat salary in the near future then by all means go for it, but if you have any common sense rather stay away from something that has the potential to financial trap and cripple you in the future. If you have had any similar experiences share them. It is always interesting to learn what new, weird and wonderful ways banks will manipulate you in to spending money you do not have.