Beware a new car payment scheme that can trip you up - the step payment plan

Consumer journalist Wendy Knowler joins Stephen Grootes on The Money Show. 

A lot has been written about the pitfalls of using balloon payments to pay off your car, raising awareness of the downside.

RELATED: Why you should avoid balloon payments

But what about the step payment plan?

This has been offered by Nedbank’s car finance division MFC via dealerships for almost two years now, Wendy Knowler has discovered.

How it works is that you start off paying a lowish instalment, but it increases every year or so until you’re paying substantially more by the final year.

The consumer journo follows up on the case of one client who was moved on to a step payment plan, but without his knowledge, he says.

Tebo Khanya told Knowler that when he went to buy an Omoda last year, he informed the finance and insurance consultant based at the dealership that he could afford a monthly instalment of only about R6,500.

The first contract presented to Khanya was for a monthly amount of R7,800 despite his stipulation, whichhe refused.

He then agreed to the next one, with a figure of around R6,400.

"Khanya is adamant that the consultant made no mention of the step payment model and how it works."

Wendy Knowler, Consumer Journalist

"He found out last month when Nedbank sent him an email, advising him that his repayments would from this month escalate from R6,374 to R6,908, eventually reaching R8,737 per month."

Wendy Knowler, Consumer Journalist

When Khanya told the dealership he was misled by omission, the response was that he’d signed a contract reflecting those terms.

“But this misses the point entirely. I was never informed verbally about step payments or their financial impact.”

Tebo Khanya, Car Buyer

Since Knowler approached MFC, Khanya has been offered a new deal, with a balloon payment. 

However, this doesn’t really help, she says, because it's just another way of deferring the payment pain.

Knowler reiterates that when you’re financing a car, you MUST read the payments section very, very carefully.

"Read every word, every date, every amount."

Wendy Knowler, Consumer Journalist

"Don’t assume that you’re getting the whole story from the person doing the 'sign here'...'sign here' routine."

Wendy Knowler, Consumer Journalist

For more detail, listen to Knowler's account in the interview audio at the top of the article