This is how balloon payment works; say you want a car that you really love, but you can’t realistically afford it right now. It costs, N$300 000. So you borrow N$300 000 over 5 years from the bank and you elect to have N$100 000 Balloon Payment on your loan.

The bank will put that N$100 000 aside and let you pay the remaining N$200 000 off and now your monthly installments are very lower than they would’ve been if you had no balloon payment? Sounds good, right? There is a catch;

So, now you can afford that car you really love. Except, at the end of that 5 year period, you still owe the bank N$100 000, and now, they want all of it at ONCE...https://abs.twimg.com/emoji/v2/... draggable="false" alt="💀" title="Skull" aria-label="Emoji: Skull">https://abs.twimg.com/emoji/v2/... draggable="false" alt="😶" title="Face without mouth" aria-label="Emoji: Face without mouth"> Now, ask yourself; will you really be able to save a N$100 000 over a period of 5 years?https://abs.twimg.com/emoji/v2/... draggable="false" alt="👽" title="Extraterrestrial alien" aria-label="Emoji: Extraterrestrial alien">https://abs.twimg.com/emoji/v2/... draggable="false" alt="💀" title="Skull" aria-label="Emoji: Skull">

I highly doubt anyone will be able to save that amount in 5 years time.

So, you either need to pay that full amount or roll the amount over into a new loan where you will have to pay interest on the full amount again and what does that means? Waaaasha, you are in debts again.https://abs.twimg.com/emoji/v2/... draggable="false" alt="🤦🏾‍♀️" title="Woman facepalming (medium dark skin tone)" aria-label="Emoji: Woman facepalming (medium dark skin tone)">

Unless you are 150% certain that you will be able to save enough money to cover your balloon payment at the end of the 5-year period, DO NOT DO IT! JUST DO NOT!

Choose a car that you can afford and go for a normal vehicle loan..https://abs.twimg.com/emoji/v2/... draggable="false" alt="😊" title="Smiling face with smiling eyes" aria-label="Emoji: Smiling face with smiling eyes">https://abs.twimg.com/emoji/v2/... draggable="false" alt="😆" title="Smiling face with open mouth and tightly-closed eyes" aria-label="Emoji: Smiling face with open mouth and tightly-closed eyes">

Getting out of this debt is pretty difficult, too. It’s not the same as paying a normal vehicle loan.https://abs.twimg.com/emoji/v2/... draggable="false" alt="💀" title="Skull" aria-label="Emoji: Skull">

You might be responsible for early termination charges which are stipulated on the contract, if any.https://abs.twimg.com/emoji/v2/... draggable="false" alt="😃" title="Smiling face with open mouth" aria-label="Emoji: Smiling face with open mouth">

So, you need to understand any possible penalties before signing.https://abs.twimg.com/emoji/v2/... draggable="false" alt="😆" title="Smiling face with open mouth and tightly-closed eyes" aria-label="Emoji: Smiling face with open mouth and tightly-closed eyes">