Cars are expensive and when it is time to buying a new car it might seem near impossible to get the cash together to pay for it in full. Luckily, there are many vehicle finance options available, however, before you can drive off in your dream ride you need to fully understand what you are in for.
Make sure you know what you can afford: The monthly vehicle finance instalment is only one part of your total monthly car expenses. You also have to factor in your fuel cost, insurance premiums, repairs/service fees, car tracking device etc. As a starting point, you can use a vehicle finance calculator to get an idea of what your vehicle finance instalment will be.
Deposit: Paying a deposit on your new car will ensure a lower premium and interest rate. This is a good way to take of that little bit of extra expense at the end of each month.
Knowing your interest rate: fixed or linked? There are two types of interest rates: fixed and linked. A fixed interest rate means your agreed-upon interest rate will not change and your monthly instalment will stay exactly the same for the vehicle finance period. A linked interest rate is linked to the prime lending rate of South Africa. When this increases, so will your instalment, however, when there is a decrease your monthly instalment amount will be less. Whichever rate you choose, make sure that you get the lowest possible interest rate.
The term of your agreement: Another important factor in how much you pay every month for your vehicle finance is the period of time over which you will pay back your loan. This could be a minimum of 12 months or up to 72 months. The longer your vehicle finance term is, the smaller your monthly instalments will be. However, a longer term also means a higher interest rate so you will end up paying more and for longer.
Understanding residuals (balloon payments): To make car payments more affordable, buyers can also opt for a residual or balloon payment. This is where a percentage of the vehicle value is taken off the finance amount and is payable as a lump sum final instalment at the end of the finance period. So if you buy a car worth R500 000, a residual amount of R100 000 is owed at a later stage and you only pay off R400 000. It is possible to get this ‘balloon payment’ refinanced but, just in case you can’t afford to pay it, it’s a good idea to take out insurance against non-payment. In addition, you can also apply for shortfall insurance cover should your vehicle be written off in an accident and you have to pay back the remaining loan amount.
Finding the best deal: Iemas Vehicle Finance not only offers competitive vehicle finance solutions, but we can also assist in finding the perfect car for you. We are as proud of your wheels as you are, which is why Iemas also provides short-term insurance on vehicles for those unfortunate incidents. Contact Iemas Financial Services on 0861 043 627 for more information.
Read related blog article here: How do you know when it is time to buy a new vehicle?
Adapted from: https://santam.co.za/blog/car-advice/advice-on-car-financing?v=1&utm_campaign=advice_on_car_financing_fb2&utm_medium=cpc&utm_source=facebook