How does vehicle finance work?

I am as clueless about cars as I am about purchasing one for myself and I'm sure I am not the only one? You've just graduated and have managed to get yourself a full-time job away from home. Not only are you thinking about places to stay, if you don't already have one, but also considering buying a car because public transport is as unpredictable as our economy.

Perhaps you've had your car since Matric and it no longer runs as well as it used to. Finally you have the option of getting a new vehicle but don't know how vehicle financing works.

What to consider when buying a car

Relationship manager, Roshan Isaacs, from Nedbank says that, "When purchasing a car one should know the model and year of the car, check the mileage and the condition of the vehicle particularly when looking into buying a used vehicle".

According to Cars.co.za it's important to know the value of the car, purchase a Transunion Car Value Report for R10 to get that kind of information. Verify the car by checking the history of the vehicle. Do not leave it to the dealership to sort out the finance and insurance paperwork for you. It is best to discuss insurance as you purchase the vehicle and not leave it for another day.

It is best to discuss insurance as you purchase the vehicle and not leave it for another day.

Lastly, also check your affordability of a vehicle before choosing a Fast & Furious type of car or else you will end up financially strained. Make use of our Budget Tool to help you decide on how much you can actually spend on a new vehicle. Shop around for loans that best suit your needs and consider the repayment period that will not strain your funds in future.

What are my payment options

When it comes to choosing the best repayment options, Digital Support Specialist, Bandile Ngcolomba from Old Mutual Finances explains that this would be dependent on your plans for the car, i.e. do you want to own it or do you want to lease it or are you planning on changing cars every few years? If that is the case, you may choose one of the following options:

1. Cash

Paying cash saves you from paying a hefty amount on interest therefore the car will cost you less.

2. Instalment

This is the most common option for car payments and is usually provided by means of vehicle financing from a bank. This option allows you to pay on a monthly basis for up to 6 years (72 months) but the longer the time frame the more interest you pay. You can apply for vehicle financing, with or without a deposit.

3. Instalment with Balloon Payment

A balloon payment is also referred to as a residual. Buying a car with a balloon payment means that you will need to pay a percentage of the car's retail price in a lump sum at the end of the payment term. The balloon amount varies for every make or model of a vehicle. This option allows you to decrease your monthly instalments.

4. Lease Agreement

This agreement gives you the right to use the vehicle as your own without owning it. Ownership rests with the credit provider and you only have temporary possession of the car. Payment for the possession and use of the car is made on an agreed or determined periodic basis during the life of the agreement. Interest fees and charges are payable to the credit provider in respect of the agreement.

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