Your vehicle is a tangible asset on your personal balance sheet. However, the way you handle your vehicle financing determines whether your car remains an asset. Once it becomes a liability you may struggle to pay it off and even cause you to become credit-bureau listed. Ensure your vehicle remains an asset by following these six steps:
Doing background research into vehicles and financing
Researching interest rates
Saving for a deposit
Structuring your repayments optimally
Putting together appropriate personal documents
Examining your vehicle finance contract
Handling payment defaults
Doing Background Research into Vehicles and Financing
Research thoroughly before putting in an offer on a vehicle or taking out vehicle finance. This puts you in charge of your personal finances, prevents embarrassment, and allows you to walk confidently into a dealership. Begin this journey by:
Identifying your transport needs. (Don’t be tempted to match your vehicle choice with the credit amount for which you qualify as this could stretch your finances unnecessarily and prevent you from saving).
Checking your credit score for errors and disputing inaccurate information. Understand how negative information affects your ability to secure credit and the interest rates you will pay. You can check your credit score online at one of South Africa’s four credit bureaus, namely:
Understanding your personal budget and financial situation. Remember that a longer term finance contract may mean smaller monthly repayments than a shorter-term finance contract but is more expensive as you pay more over time.
Finding out the cost of insurance from your insurer so you can factor in that amount into your budget.
Checking vehicle buying guides to identify the vehicle you wish to drive at a cost you can afford.
Determining the market value of your current vehicle, which you may use as a trade-in to help finance your new car.
Understanding the cost of credit including interest rates.
Getting pre-approval from a bank before you walk into a dealership, so you can do so with confidence
Understanding critical terms and conditions regarding vehicle loans, namely:
-The minimum amount you may borrow is R40,000
-The minimum repayment period is 12 months.
-The vehicle needs to be insured for the life time of the loan
Researching Interest Rates
Interest rates are the cost you pay to borrow money. It is calculated using a percentage to give you the actual amount to be paid. You may be able to negotiate a suitable rate between the various banks and finance houses.
Saving for a Deposit
Start to save for a deposit as soon as you think about buying a car. With a bigger deposit, the risk to the bank will be less and you could qualify for a better interest rate. When assessing your profile, banks will view the fact that you have the ability to save and manage your finances as positive factors.
A deposit lowers your monthly instalments as you will have less to repay, and you will be paying less interest.
Structuring your Repayments Optimally
The longer you take to repay a loan, the more interest you’ll pay and banks often charge higher interest rates for longer loans, increasing your cost of credit.
By putting down a 10% deposit and financing your car over 54 months instead of 60, you make the following savings:
Monthly repayment: R3,447
Total repaid over 54 months: R186,138
Total savings less the deposit: R11,712
Take the following documents with you when applying for vehicle finance, as they are required to process your loan:
Proof of residence
Three months bank statements
Signature verification proof
Passport size photograph of yourself
Examine your Vehicle Finance Contract
Know the terms before signing any vehicle finance document whether at a dealership, bank, or other finance company as financing has a language of its own. Understand additional products a dealer may offer you, including:
Fees – Pay for them in cash and don’t include as part of your vehicle finance agreement as this adds to costs
Extended warrantees - Pay them upfront
Credit Life Insurance – You have the option to offer (cede) your own Credit Life Policy to the bank covering the loan instead of the bank’s policy. The bank is allowed to check your policy and if it does not match its own, they can advise you to have it upgraded or to switch to their’s.
Terms and Conditions
You are required to pay all fees and interest that appear on your loan contract. It’s best to pay the initiation fee in cash at the start of your loan as this saves interest over the life of your loan.
Handling Payment Defaults
If you do not pay your loan every month as agreed between you and the bank, this will add more interest and fees to your loan and the final payment of your loan will be later than you thought.
Should you get into financial difficulty, contact your bank immediately so they can draft a new payment plan and re-spread your arrears. This helps you maintain a positive credit rating and to steer clear of being negatively listed at a bureau.
Once you have researched and are ready to buy, Auto Pedigree has over 4,000 quality used cars for sale as well as finance arrangements with all major banks in South Africa to assist.