How can you leverage residual payments to work for you and not against you?

Let me start by saying this is not financial advice, but rather financial education—specifically around why balloon (residual) payment plans exist, and how they can be used properly to make your money work for you instead of against you. After 10 years in both the new and used car market, I’ve picked up a fair amount of insight that I think is worth sharing.

Dealers today rarely advertise the actual price of a vehicle anymore. Instead, they push the pretty monthly instalment, because it looks far more attractive than the real number ever could.

“R8 999 per month with a 40% residual” hidden in small print versus “R1 000 000 purchase price” sounds amazing and affordable… right?

Let’s start by understanding what a residual actually is.

If a vehicle has a retail price of R1 000 000 and you finance it with a 40% balloon, you’re effectively financing 60% of the value and agreeing to settle the remaining 40% as a lump sum at the end of the contract. In this example, that means R400 000 becomes immediately due once the agreed term—usually 72 months—comes to an end.

Here’s where things usually go wrong.

Six years later, after depreciation, the vehicle is now worth around R350 000, but you still owe the bank R400 000. You can’t recover that shortfall through resale. Worse still, after six years you’re ready for something new, so the “easy” option is to trade it in—rolling the R50 000 deficit into your next deal. That shortfall then earns interest… on top of interest… and the cycle repeats.

That’s not strategy. That’s a trap.

Using a residual to buy a vehicle you couldn’t afford in the first place is one of the fastest ways to quietly cripple yourself financially.

Now for the interesting part: how to use a residual so it actually works for you.

The example below only applies to vehicles with strong resale value and average mileage of less than 20 000 km per year.

Let’s use a popular, realistic example: a brand-new 2026 Volkswagen Polo Vivo 1.4 Life. After on-the-road costs and adding a 5-year maintenance plan (very important—it significantly improves resale value), the price lands at roughly R300 000. I’ll round numbers to keep the maths clean.

With a 40% residual, you’re financing R180 000 and agreeing to settle R120 000 at the end of the term. Sounds scary on paper—but is it really?

Assuming a fairly average interest rate of 15% (many buyers will qualify for better, which only improves the outcome), the key move is this: finance over 48 months, not 72. You end up with a manageable instalment of around R6 500 per month, while using the residual to stay more liquid on a monthly basis—without overstretching yourself.

Now after the 4 years you sell the vehicle and remember that 5 year maintence plan comes into play and enhances your value of your car on average a 2022 Polo Vivo 1.4 goes for around R229 990 

Now, when it’s time to exit quickly and cleanly, you simply trade the vehicle in on a brand-new 2030 Polo Vivo, same or similar model.

Volkswagen offers you around R200 000 for your 2026 Polo with roughly 80 000 km on the clock and the remaining balance of the maintenance plan intact. You then settle the 40% residual of R120 000, which leaves you with R80 000 cash in hand.

Your monthly instalment stays largely the same, you step into a brand-new car, and you move forward without carrying any financial baggage.

Ideally… you rinse and repeat.

The upside:

• No falling into a debt trap

• A new car every four years

• R80 000 in the bank at each cycle

• Predictable, trouble-free motoring thanks to the maintenance plan

It’s not flashy. It’s not emotional. It’s disciplined—and that’s exactly why it works.

Honestly, I wish someone had explained this to me when I was 20, instead of letting me buy a second-hand BMW just to look stylish… and pay for it long after the image wore off.