Financing a Car
There are many decisions you need to make when you’re looking at getting your hands on a car, including choosing between new or used, and buying or leasing.
Buying a Car
When financing either a new or used car, you need to consider the following:
- Interest rate
- Monthly repayments
- Balloon payments
This is the amount you’ll pay right at the start and will reduce the overall amount of your monthly repayments, as well as the interest. It’s usually best to pay a higher
Fixed vs Linked Interest Rate
Fixed rates stay the same for the duration of the loan, while linked interest rates are variable and can change. The linked rate is linked to the prime lending rate of South Africa – when the rates increase, so will your
This is the duration of the loan term (the amount of time you’ll spend paying off your loan). The longer the contract period is, the lower the amounts you’ll pay each month, but the interest will usually increase. This means that longer contract periods could end up costing you more.
A balloon payment is
Tips on Applying for a Car Loan
1. Get yourself pre-approved by applying online (this is available from a range of institutions).
2. Visit the dealership and speak to a salesperson and let them know you’re preapproved.
3. The salesperson will broker interest rates among four banks to see who is offering the lowest rates, as well as determine who’ll be paying him the best commission.
4. The salesperson has the power to bring down the interest rates offered by the banks.
5. While a sales person might not always want to offer you the best interest rate, keep in mind that time is on your side, and salespeople have monthly targets. The best time to buy is after the 27th of the month, when dealerships and banks need to start compromising in order to make sales before the end of the month.
6. The most important words to come out of your mouth are: “I’ve already been approved. I will not accept a bad rate. I am not in a hurry.”
Remember: How you manage your funds when you’re young, including the choices you make when buying your first car, will shape your entire financial future. It’s not only the cost of the car you need to consider when determining your budget, but also the cost of fuel, services,
When applying for a car loan, opt for a shorter finance term. You’ll be paying more each month, but you’ll be able to pay off your vehicle in a shorter time. This will allow you to pay less interest and your vehicle will be worth more by the time you’ve paid it off, allowing you to get a higher trade-in value.
You can use online calculators like WesBank’s Vehicle Payment and Insurance Calculator (Click here) to adjust things like total cost and monthly repayments, allowing you to see what sort of term you can afford.
Leasing a Vehicle
More and more people around the world are leasing their vehicles, rather than buying the car outright, but this isn’t a huge industry in South Africa – at least not yet.
The Basics of a Car Lease Agreement
A car lease agreement allows a customer to use a car without having to own it. Once the term of the lease is over, the vehicle must be returned to the bank.
The biggest benefit of leasing a car is that a customer can get a brand-new car every two to four years.
Keep in mind that balloon payments can sometimes apply to lease agreements
Buying Vs Leasing a Vehicle
- Leases often cost less per month than purchasing a vehicle.
- When leasing a car, you don’t have to worry as much about maintenance costs, since the car will generally be a new one. Leases will also come with a manufacturer’s warranty, maintenance and service agreements.
- Leasing is generally for those buyers who want to drive more modern vehicles and then replace them on a regular basis.
- Buying is for those who eventually want to pay off the vehicle (which means they will have no monthly debt to repay until such time that they need to replace the vehicle.)
- Lease agreements come with strict limitations, including mileage restrictions. In these instances, penalties could be applied to those who travel more than the agreed-upon distance.