Best car loan options in South Africa?
What are the best car loan options in South Africa?
- Understand the terms before signing a car loan agreement
- Always opt for the shortest repayment period according to budget
- Try to put down as large a deposit as possible
- Where possible steer clear of “Balloon Payments”
- Always buy a vehicle within your financial means
There are many variables to financing the purchase of a vehicle in South Africa.
Many consumers do not realise that a bank or finance house will provide loans for vehicles purchased privately.
However, interest rates are generally cheaper when purchasing a vehicle through a dealer.
Wesbank is a name synonymous with vehicle financing and the company gives this advice when purchasing.
Ask questions at the dealership
- National Credit Regular-registered Finance and Insurance (F&I) representatives usually guide buyers through the contract when arriving at a dealership to purchase a vehicle. Do not rush into signing a car loan contract without clearly understanding all the important clauses involved with the purchase.
- Buyers have two options when purchasing – fixed or linked interest rates. Understand the difference. A Fixed interest rate remains unchanged throughout the life of the contract, whereas linked interest rates can fluctuate upwards or downwards whenever the Reserve Bank changes the repo rate.
- Carefully select the repayment periods. This can be over a period of one to six years. Remember, the longer the repayment period, the more interest and fees involved.
- Put down the biggest deposit possible to save on interest payments and to lower monthly instalments.
- Apart from the cost of the vehicle, extras include administration, licensing and delivery fees.
- Optional extras could include a vehicle and service warranty.
- More extras are insurance products to refund deposits in the event of major accidents or theft, as well as gap cover that will settle the outstanding bank loan should vehicle insurance cover not pay the full outstanding amount.
- Comprehensive insurance is compulsory when obtaining a car loan and will remain in force for the entire contract period. The insurance is available privately or through the dealership.
- “Balloon Payments” is another option offered buyers. Although these lower monthly instalments, there is a settlement figure payable at the end of the contract. In many cases, naive buyers will end up having to obtain a further loan to settle the outstanding “Balloon Payment” amount.
From this, it is clear that vehicle buyers must do their homework before rushing into a deal.
The importance of budgeting
Do not doggedly pursue the purchase of a dream vehicle when this would place an onerous burden on the monthly budget.
Before driving away in that luxury vehicle consider alternative choices.
A budget should include cash-on-hand for unforeseen expenses and for the rise in the cost of maintenance, repairs and fuel.
Luxury car financing
Luxury car dealerships like Mercedes-Benz offer clients a different form of finance that allows them to drive away in a new vehicle every three years.
Repayments are apparently lower than what can be offered with traditional vehicle finance.
Known as Agility Finance, vehicles are returned after 36 months at a value guaranteed at the start of the contract.
The customer then selects a new vehicle and the finance agreement continues for another three-year term.
Obtaining a private vehicle loan
There are several South African companies that offer loans to private vehicle buyers.
Among these is Carfin that offers buyers two options:
- Standard Hire Purchase (HP) Agreement
- Residual Purchase financing
HP agreements are linked to prime interest rates for a fixed contract period. Once the loan is fully repaid, the buyer retains ownership of the vehicle.
Residual Purchase financing offers buyers a lower monthly instalment, but this is actually a Balloon Payment in which a percentage of the original loan must be repaid at the end of the contract.
Financing through banks
As stated earlier, Wesbank is a name synonymous with vehicle financing.
The company is a division of FirstRand Bank and one of the biggest credit financiers in South Africa.
With Wesbank, purchases can be made through dealerships or privately.
Other banks which will finance the purchase of a vehicle include Standard and First National.
Aspects to consider before buying
- What can you afford?
- Fuel choices
- Why do you need a vehicle?
- Safety considerations
- Must you sell your current vehicle?
- Affordability should be high on the priority list when purchasing a vehicle.
It is not only monthly instalments that must be repaid but also ever-rising fuel, maintenance and insurance costs.
Avoid buying a “gas guzzler”.
Diesel costs less.
- Vehicles must be bought to suit the needs of the driver.
For example, a sales rep would be better off buying a low mileage vehicle with air conditioning.
This would not apply to someone looking for a run-around to the local shops.
- Safety is another high priority consideration.
Some vehicles are more likely to be stolen or hijacked.
- People seeking car financing and who need to sell their current vehicle should find themselves a buyer before signing a car loan contract.
This will avoid the possibility of selling the vehicle for less money than expected.
Raising any form of loan requires serious consideration.
However, most South Africans do not have the cash-on-hand to purchase a vehicle outright so have to resort to the loan financing option.
Investigate all aspects of the loan required and opt for the one that gives the best rates but includes the necessary cover to maintain the vehicle throughout the life of the contract.
Spending a little time doing research online will save prospective vehicle buyers a lot of money and avoid unforeseen financial shocks.