The motor industry and its auto finance partners have come up with all sorts of creative ways to make it possible for people to buy cars they can't really afford.
The balloon payment deal is one of them. The consumer's monthly repayment is 'artificially' reduced by requiring them to pay a considerable “balloon payment” at the end of the five or six-year term.
Often this final, huge payment is glossed over in the selling process, which is why the National Credit Act makes it compulsory for all the details of the car finance deal to be declared in car adverts.
Which brings me to the advert for a BMW 320i that was placed in three major Sunday newspapers on August 26.
It stated that the car could be had for no deposit and a payment of R4779 a month for 54 months. 'Total cost' was put at R254 347, and the tiny print at the bottom of the advert intriguingly listed 'guaranteed future value' among the items excluded from that total cost.
Krisen Chanderdeo of Durban was keen but, on making contact with a local BMW dealership, he discovered that after paying the R4779 for four and a half years, he'd have to either sell the car to BMW for an amount stipulated upfront by the company or pay a balloon amount of R191 000 to keep the car.
In light of this, Chanderdeo felt the advert was misleading.
I had a look at the advert and then wrote to BMW's communications general manager Guy Kilfoil, saying that it appeared that the advert was not compliant with the act.
Because of the guaranteed buy-back after 54 months, Kilfoil said, the consumer would have no liability at the end of the contract term, “hence the use of the words 'guaranteed future value'.
“If the consumer does not wish to take up the offering by BMW Financial Services and instead wants to purchase the vehicle outright at the end of the contract term, then the finance offering and finance agreement are changed to make allowance for a balloon payment,” he said.
“But this is different to what is being offered in the advertisement, which is a new BMW 320i at a fixed instalment for a period of 54 months and at the end of the term BMW Financial Services will guarantee to repurchase the vehicle at a future date, for a certain value.”
MISLEADING
But since none of what would happen after those 54 months was clearly spelt out in the advert, I approached the National Credit Regulator for its view of the advert. Senior legal advisor Annemarie Friedman said the NCR believed the advert to be misleading and that it did indeed contravene the NCA.
“BMW has since responded and agreed that the advert was misleading and has withdrawn it,” Friedman said. “The NCR is currently looking into the matter.”
BMW Financial Services told the NCR on September 7 that it had not seen the advert in question before it was published, and that after it was published, “the necessary internal meetings were held to assure that this would not happen again and a revised advertisement was approved by BMW Finance”. Funny, I wasn't told that 10 days earlier. - The Star