If you are looking to buy a car and don’t have a big bag of cash lying around, you need to know how to get your hands on affordable vehicle finance. Once you have found your dream car, whether new or second hand, you will need to know the various options available to you, and move swiftly, in order to avoid losing those dream wheels.
The National Credit Act sets out standard conditions for a vehicle instalment sale agreement. Essentially, provision of credit to purchase a vehicle is based on the condition that the borrower pays back the capital plus interest.
Monthly Instalments and Interest Rates
Your monthly instalments for car finance will be determined based on the purchase price of the car. This, beyond sticking to a budget, is pretty much beyond your control. What is slightly more in your control is the interest rate you get, and the “extras” such as warranties, that you add to the price of the car.
The way in which you can “influence” your interest rate on car loans offered by banks in South Africa, is by having an impeccable credit record. If you have always paid your debts on time and at the required amounts, this will have a positive influence on the interest rate you obtain for your vehicle finance. What is not in your control however, is the current REPO rate. This is determined by the South African Reserve Bank, and will be the starting point for your interest rate. If you get “prime”, this means that you get the current lending rate. Getting “prime plus” is not ideal on vehicle finance, while “prime minus” is great – and means you are seen as a stable and valuable client of the vehicle financer lender.
Various vehicle sellers will be linked to a particular vehicle finance institution, and while you are able to approach different vehicle financiers, it is usually easier to go with the specified financier in these cases. Due to strong relationships between various vehicle sellers and financiers, you would probably end up getting a better interest rate if you went with the recommended lender.
It is also usually preferential to approach the bank you bank with to finance your vehicle, as you have an existing relationship with them, so they are likely to look more favourably on your case. It is also handy to do this from a convenience point of view, as you are then able to keep all of your accounts in the same place.
There are also lenders which are not attached to a particular bank. These often focus more on second hand car sales, and usually offer a warranty as part of the sale. In fact, some lenders impose a warranty or service plan, to ensure that buyers are covered to pay back their monthly premiums even in the eventuality of having to fork out a lot to fix the car.
As with any finance structure, it is recommended to work out exactly what you can afford each month, taking into account interest rate hikes. Getting your hands on affordable vehicle finance is relatively easy, as long as you know where to look, and ensure you understand all of the conditions associated with the agreement.