CAR buyers are being increasingly seduced by the lure of residual values — also known as “balloon payments” —as rising motoring costs force them to look for more flexible ways to finance vehicles.

Banks, however, are resisting the trend for fear of creating heavy consumer debt four or five years down the line.

WesBank and Standard Bank both report growing demand for no-deposit deals that could leave customers with heavy bills at the end of the finance period.

Standard vehicle and asset finance division head Sydney Soundy said on Monday that since the beginning of 2012, the proportion of vehicle finance applications involving residual values rather than down-payments had risen from 8.9% to 14.6% — or less than one in 11 to more than one in seven.

Residual values allow customers to pay a reduced or no deposit at the start of the finance period. In effect, they postpon e the payment until the end of the contract, when they may have to clear a debt equivalent to 30% or more of the purchase price. In many cases, they end up refinancing this debt for another two years.

According to banks, many consumers d o not understand the long-term implications of balloons.

The 2012-13 growth in residual applications happened during a period of low interest rates and in a growing market. With new-car sales down 6.3% so far this year and interest rates on the rise, banks expect the trend to accelerate.

However, according to Mr Soundy, banks would continue to “save buyers from themselves”.

WesBank CEO Chris de Kock said yesterday that despite a declining new vehicle market, finance applications had risen this year.

New-vehicle sales released yesterday by the National Association of Automobile Manufacturers of SA (Naamsa) showed the extent to which consumers were taking strain. Naamsa director Nico Vermeulen said that after four successive years of growth in new vehicle sales, consumer confidence was “under pressure with high levels of indebtedness, sharp increases in energy and transport costs, particularly in Gauteng due to e-tolling”. He said these factors would affect demand, principally in the new car market.

Mr Soundy underlined the rising costs affecting motorists when he noted that tomorrow’s fuel price increases of 36c and 28c on petrol and diesel respectively would mean petrol had risen 84% and diesel 94% since January 2010. “Filling up a vehicle with a tank capacity of 50l has increased by approximately R320 since then,” he said.

Vehicle export figures have also taken a knock this year, Naamsa said. In the first two months, they were down 19.8% from 44,474 to 35,664. This was partly due to lack of stock caused by the strike at vehicle assemblers and components companies towards the end of the year.

But it also owed much to the end-of-year production slowdown at Mercedes-Benz SA’s East London assembly plant as the company prepared for the changeover to a new, export-focused C-Class model. Full-scale production of the new model is expected to start in a few weeks.