Are you looking for safe, reliable, convenient transport? Or perhaps you’re a certified petrol head and the roar of the engine gets your blood pumping. For a majority of South Africans owning their very own vehicle is a dream. Unfortunately, this dream is too often shattered by hefty price tags and tight budgets.
It can be difficult to save up for the car of your dreams when you have so many other financial commitments, like home loans, grocery bills, school fees, electricity bills and the list goes on. Without a vehicle of your own, you can find yourself relying on friends and family, expensive private taxi or ride-sharing services or public transportation.
However, the cost of using public transportation can add up over time, and it may not be the safest option for women and children in South Africa. While even a run-down, second-hand car can set you back tens of thousands of rands, you don’t need to push your dreams of owning a vehicle aside due to financial woes. This is the beauty of vehicle financing plans!
CarFin
Investec
Capitec Bank
First National Bank
Nedbank
Standard Bank
Absa
WesBank
Here at BudgetGist, we understand that navigating your financial future can be challenging. You don’t need to scour the internet trying to find accurate financial information to make an informed decision about buying a car. We pride ourselves on being South Africa’s information hub for all things related to finance and money, so BudgetGist's got your vehicle finance questions covered!
Firstly, what do we mean by vehicle finance? Vehicle financing refers to a specific type of loan that is given out for the sole purpose of buying a car. This means that a bank or lending institution will lend you the cash to buy a car and you will have to make monthly repayments.
With the average car finance plan having a term of five years, the loan amount will be paid off over an average of 60 months with interest. Some vehicle finance plans, Absa's Instalment Sale Agreement are more flexible in terms of loan repayment period and can be paid off over 24 to 72 months. It’s important to note that vehicle loans have a higher interest rate than other loans, like mortgages, so it's best to pay off your loan as soon as possible.
Along with the high interest rates, financing your vehicle has plenty of other costs that you have to factor in when considering affordability. A vehicle is not a once-off expense; there are ongoing maintenance costs, insurance premiums, petrol, service fees, and a balloon payment and/or deposit to consider. You can expect certain costs like petrol, insurance premiums and maintenance costs to increase over time. Other costs, such as your actual loan premium can remain constant over the five-year period.
When it comes to calculating how much you can afford to borrow, there are three factors you should consider: your credit score, your deposit, and your income.
Your credit score lets banks and alternative financial institutions know how much of a credit risk you are. Your creditworthiness can determine how much the bank will lend to you if they agree to loan you money at all. It also plays a role in the interest rate you will be offered, and any additional terms and conditions the bank may set out after assessing your financial situation.
While some vehicle financing plans may not require an upfront deposit, it can help to save towards one. Having a deposit, whether substantial or not, will reduce the amount of capital you borrow overall. Consequently, your loan premiums will decrease as well as the overall amount of interest that you will pay.
Bank and alternative financial institutions will use your monthly income as an indicator of the maximum loan amount you qualify for. To calculate your potential premiums, you can subtract your other fixed expenses, such as your mortgage or rent and utility bills, from your income. You can also factor in any other monthly expenses you deem as necessary, such as contributions to your personal savings. The remaining value can give you a rough estimate of how much you can afford to contribute towards your vehicle financing and vehicle associated costs monthly.
As we’ve mentioned, having a good credit score, a deposit and earning a decent salary can help you with securing a loan at a good interest rate. Therefore, it’s best that you begin planning your financial application a few months in advance.
A very simple way to improve your credit score is to ensure that you pay your debts timeously. Take a look at your credit report well before beginning any applications. Ensure that the information captured is accurate and take note of any outstanding debts and lines of credit that are not in good standing. Repaying any current debt will boost your creditworthiness and help you negotiate a good interest rate.
Alternatively, if you don't have any open lines of credit you can use this time to build your credit score. This can be easily achieved by obtaining retail credit cards that are paid off at the end of every month.
Try to build up a substantial deposit in the months leading up to your financing application. If you’re buying a new vehicle, aim for a deposit that is approximately 20% of the purchase price. For used vehicles, you can aim for a lower deposit of around 10% of the vehicle’s purchase price.
Additionally, you might want to save up for a balloon payment. A balloon payment is a percentage of your loan that is paid off at once, often right at the end of the repayment period. Your lending institution may stipulate the amount that you will have to pay as a balloon payment in the terms and conditions. As with a deposit, a larger balloon payment means lower monthly premiums and less interest to pay.
Another way to save on paying interest is to pay more than the agreed minimum loan premium every month. By doing so, you are shortening the loan term by reducing the capital amount owed. This significantly reduces the interest you will pay on the capital loan amount.
Some people may advise using money from your home loan to finance your vehicle. However, while a home loan has a lower interest rate, it has a much longer loan repayment period. This means that your monthly repayment might be lower but your total repayment will be much higher.
Vehicle financing is a type of loan that is offered by all major South African banks. The interest rates on vehicle finance can be very high, however, there are ways to offset this. By paying more on your deposit and balloon payment, you can lower your monthly premium and your overall interest paid. You can also make additional payments to reduce your loan term.
Don't throw yourself into the deep end when it comes to your car finance. Try to borrow well within your means, bearing in mind that loan premiums aren't going to be your only car-related expenses for the month.
Perfecting your car finance application comes with preparation. Before even looking at a car, you should review your credit report and spending habits. Try to pay off any debts you owe, cut back on unnecessary expenditure and start saving for a deposit.
And finally, be sure to shop around for quotes and carefully read the terms and conditions of your loan agreement before signing. Take note of whether your loan is secured or unsecured, if your interest rate is subject to change, and the flexibility in your loan term. The right car loan will be personalised to suit your financial situation.
Sifting through the sheer volume of information on vehicle financing on the internet can drive you over the edge. No matter the financial conundrum, BudgetGist is here to help! We are South Africa’s information hub for all things related to finance and money.
As a temporary worker having safe, reliable transport is necessary! Whether you’re driving to a job or running errands, having a car makes life so much easier. Unfortunately, buying a car can be complicated and expensive especially if you’re a temporary worker. Due to their erratic work schedule, temporary workers may not be approved for […]
Copyright © 2022 BudgetGist. All rights reserved
