Financing your car?

Approach the purchase of your new car methodically. Don’t be swayed into an emotional purchase. Instead, start by understanding exactly what you can afford. This goes beyond down payments and monthly instalments; think about the costs of service plans and maintenance. When buying a car, it’s crucial to know exactly what you are paying for on a monthly basis, now and in the future.

These are some of the fundamental ground rules when approaching the purchase of your new car according to Investec’s Nokuhle Kumalo and Neo Mahlangu. A pre-approval process with your Private Banker gives you an excellent idea of what you can afford, as well as what the conditions of a bank loan may look like.

This ensures that when it’s time to proudly drive that vehicle off the showroom floor, you won’t be in for any nasty surprises!

“These days, you can walk into a dealership in the morning, and leave with a car that afternoon, which is an extremely dangerous thing to do. And so I think, regardless of whether there’s a deposit or not, start with just taking a little bit of time and slowing down the process.” – Neo Mahlangu, National Banking Client Segment Head at Investec Private Banking.
 

MORE: 7 steps to vehicle finance

• What do I need to know about car loans for young professionals?

  While you may finance your vehicle through a mortgage, this can be more expensive if you’re unable to repay the loan within four years (48 months). For many young professionals, a car loan is the most accessible and cost-effective form of finance.

• Should I seek vehicle finance from a bank or a dealership?

  A dealer may charge a higher interest rate, as fees for handling the financing of your car and the price of an all-in-one service. Some dealer-arranged finance offer may also prescribe relatively strict parameters around how you can use your car and the mileage it may accumulate, so always verify that these terms are practical to you and your lifestyle.

  Traditional vehicle finance via a bank is generally offered at lower interest rates. You can also get pre-approval on a loan so that you enter a potential purchase with a clear picture of affordability, and what repayment looks like.

• How much is a good down payment on a car?

  A good down payment should be around 10% to 20% of the car’s purchase price. Down payments can help in improving your loan rate and reduce your monthly instalments, easing the financial burden of your purchase.

• What is a balloon payment on a car?

  A balloon payment is a once-off large payment that covers a significant portion of your loan amount. The size of this sudden payment presents a risk and requires financial planning to ensure it can be honoured when the time comes. A balloon payment also means that you will pay less capital across the term. and therefore incur more interest.

  Balloon payments can be a good way to structure a loan where the intention is to sell the car before the end of the term, as this allows you to take advantage of lower monthly instalments.

• How does car refinancing work?

  Car refinancing is used in the event of a balloon or some other capital still being owed to the lender at the end of the loan term. Car refinancing is often expensive, requiring a payment that could be more than the value of the car itself.

• Do I need credit shortfall cover?

  Credit shortfall cover can be a good idea in the first 24 months of your loan and especially in the purchase of a brand new car where there can be a considerable shortfall between the price you paid for the vehicle, and the value it is ensured at.