What’s the best way to finance your car?

Financing a vehicle

If you plan to finance your vehicle, it’s best to evaluate financing options available to you: compare interest rates, loan terms, down payment requirements and monthly repayments.
So, always ensure that the monthly repayments are affordable and won't strain your budget.

While you may finance your vehicle through a mortgage or home loan, this can be more expensive if you’re unable to repay the loan within four years (48 months).

For many, a car loan is the most accessible and cost-effective form of finance. But, you may be wondering, ‘Should I get vehicle finance from a bank or a dealership?’

In many instances, 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 – always verify that these terms are practical to you and your lifestyle.

On the other hand, traditional vehicle finance through a bank is generally offered at lower interest rates. Moreover, 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.

Down payments – calculating the best deposit on your vehicle

A good down payment should be about 10% to 20% of the car’s purchase price.

Deposits or down payments can help in improving your loan rate and reduce your monthly instalments, easing the financial burden of your purchase.
 

Refinancing a vehicle

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.

Keep in mind, car refinancing is often expensive, requiring a payment that could be more than the value of the car itself.

Credit shortfall cover

This is a type of insurance that you can get when you finance a vehicle. It's there to help you if your car gets written off or stolen and the insurance payout isn't enough to pay off what you still owe on your car loan.

This insurance will cover the difference (‘shortfall’) between the insurance payout and the remaining loan amount. In this way, you won't be left having to pay for a car you no longer have.

Credit shortfall cover can be a good choice during the first 24 months of a loan, particularly when purchasing a new car because this is the period when there is a significant difference between the price paid for the vehicle and its insured value.