What is Vehicle Finance?

With the average cost of a used car being in the region of R234,000 and over R300,000 for a new model, most South Africans may choose to finance their vehicle purchase. Because vehicle finance has far reaching implications on your budget, Auto Pedigree provides you with a roadmap on how to go about it sensibly.

Before you go ahead and apply for vehicle financing, take a holistic view of your purchase by considering the following:

1. Calculating monthly repayments
2. Choosing a vehicle
3. Making a deposit
4. Understanding legal implications
5. Deciding on vehicle finance repayments
6. Taking out insurance
7. Weighing up flexible financing options

Calculating Monthly Repayments

Before even thinking about choosing a vehicle, look at online calculators supplied by South Africa’s leading banks or financiers to assess how much you can afford to repay monthly over your preferred repayment period.

Choosing a Vehicle

Have a clear idea of the type of motor vehicle you want and what you can afford to buy. Before applying for vehicle finance, understand:

• Your vehicle requirements for work and leisure and whether you should buy a basic passenger vehicle, station wagon, bakkie, or some other type of utility vehicle.
• The vehicle features you want and can afford, such as air conditioning, power steering, and ABS brakes.
• Keep in mind when you apply for vehicle finance that you often get better value for your money by buying a used vehicle. Previously owned vehicles are cheaper because they have already depreciated in value.
• New vehicles have the advantage of coming with a manufacturers' warranty and may offer limited risk in terms of accident damage or mechanical breakdown and can have a longer life span. However, Auto Pedigree used vehicles are low mileage and are typically still under warranty. This means you buy a car that is almost new along with all the advantages of new, without the high price tag.

Making a Deposit

In terms of the National Credit Act, you do not need to pay a minimum cash deposit on any vehicle purchased. However it makes sense to save for a deposit, as your monthly repayments will be a lot less. Your deposit can either be in cash or as a vehicle trade-in. The size of your deposit and the length of the repayment period are at the discretion of the bank and are related to the risks involved. A general rule is that the older the vehicle the bigger the deposit and the shorter the repayment term.

Understanding Legal Implications

Minors (anyone below the age of 18) cannot legally enter into a contract to buy a motor vehicle or secure instalment credit for the purchase of a motor vehicle. Individuals 18 years and over may do so but should remember their responsibilities when signing a vehicle financing agreement, namely:

• Paying the deposit and the remaining instalments
• Taking delivery of the vehicle on the agreed date
• Looking after the vehicle until the final instalment on your credit agreement has been paid
• Keeping the vehicle insured for the duration of the contract
• Making agreed vehicle repayments
• Contacting your bank should you find yourself in financial difficulty in order for them to draft a new payment plan and re-spread your arrears. Failing this, the bank (or finance company) has the right to:

1. Sue you for the arrears
2. Cancel the sale agreement
3. Repossess the vehicle
4. Claim damages from you

Deciding on Vehicle Finance Repayments

Most vehicle financing arrangements require monthly payments over a period of 6 to 60 months and you take ownership of your vehicle once you have made your final repayment. (Your finance house owns the vehicle before that date).

There are two ways of paying for the vehicle you have purchased, namely:

• Debit Order - Repayments are automatically deducted from your bank account and paid over to the vehicle financier every month. (Banks prefer debit orders as they are quick and easy to administer and ensure regular repayments).
• Manually (Cash or Electronic) – Repayments are madeby handing over or transferring the money electronically to the institution that has financed your vehicle every month.

Taking out Insurance

Any vehicle that is being financed through a bank must be comprehensively insured. Even one non-payment of a premium can result in a policy lapsing and a resulting financially precarious situation for the vehicle owner, especially in a collision.

Weighing Up Flexible Finance Options

It’s worth considering all financing options when considering vehicle finance. While some may save you money and give you flexibility others may be inappropriate given your financial situation. Here are four flexible financing solutions:

Balloon Repayments– These are optional loan repayments at the end of your loan term. This facility helps you extend your vehicle finance agreement by giving you more time to make repayments. For example, if you want to finance a car of R100,000 with a 10% balloon payment, you will pay off R90,000 over the agreed period and make a R10,000 payment at the end of the contract term. You will pay additional interest on this facility.

Deal Assistance– Also known as Trade Assistance and is a benefit provided by Auto Pedigree giving you the flexibility to structure your vehicle finance using a lump sum to use as a:

·      Deposit

·      Deferred payment

·      Cash back

·      Combination of the above

Flexible Bond– Some people decide to keep all their debts under one roof and use their flexible home bond to repay their vehicle loan. However, it’s worth noting that a vehicle has a shorter life than a home. When you decide to finance your car using a flexible bond to finance your vehicle needs, you should repay the amount borrowed over a period roughly equivalent to that of the typical vehicle repayment period to prevent paying too much interest.

Payment Holiday– While the terms and conditions of this finance facility differ from bank to bank, you are sometimes allowed to structure your vehicle finance so you can take a break from your repayments one month a year or, by request, should you run into financial difficulties.

If vehicle financing seems complicated and even daunting, Auto Pedigree consultants are available to assist you with any questions you may have. Find a dealer or call us on 010 593 9505.