If you’re thinking of purchasing a new or second-hand vehicle, the most important factor to consider is how will you finance it? The ideal way would be to buy it cash and drive off into the sunset, but the reality is that not all of us can. So, what other options are available? There are other vehicle finance options you can choose from to suit your pocket and needs.
The Instalment Sale
The most widely used option is the instalment sale which allows you to buy a car and repay it over a specified period ranging from 12 to 84 months. With market-related rates applicable whereby you will have the option between a fived or linked-interest rate. A fixed interest rate is a loan where the interest does not fluctuate during the agreed period. A linked interest rate means that your interest rate is linked to the prime lending rate of South Africa. When it increases, so will your instalment and when it decreases, the less you pay. Ideally, putting down a deposit means a more affordable monthly repayment plan and a much shorter payment period. This will ensure that you pay the least amount in interest rates. With this option, at the end of your last instalment, the vehicle is legally yours and can be registered at your nearest traffic department.
Full Maintenance Lease (FML)
It’s exactly as the name suggests, leasing a vehicle or renting it out for some time. You pay to use the vehicle as your own without owning it. Its monthly fee is lower than monthly vehicle instalments and it covers all maintenance costs. These include maintenance & service, fuel and insurance among others that are required. It does have its cons such as travel restriction and the kilometres it can and shouldn’t exceed. While the idea of driving the latest vehicle model may seem great at first, the vehicle will not be yours. And if you’d like to terminate the contract earlier, there is a heft fee to pay.
This is also known as a residual payment - a vehicle finance option similar to that of the monthly instalment plan. The only difference here is that a lump sum is expected as the final payment before ownership can be handed over. Think of it as the vehicle deposit in reverse. For anyone opting for a balloon payment, financial discipline should be exercised.
When opting for this option, you are essentially paying off the vehicle loan at a lower interest rate but not all of it. Meaning, the remaining amount still needs to be paid and this is where the term balloon payment comes in. At the end of the payment plan period, the set-aside loan should be paid in full. So, when purchasing a vehicle, it is important to understand exactly what financial commitment you are binding yourself into.
And if for whatever reason, you are unable to meet your payment obligations, the bank will notify you of your outstanding balance 90-days in advance. You will have three options:
Sell your vehicle at a dealership to settle the outstanding amount.
Refinance - Draft a new agreement plan with additional months ranging from 24, 36 and 48 to pay off the vehicle. The interest will differ from the original agreement.
Trade it in.
Should you decide to sell your vehicle through a dealership, they will first settle the outstanding balance which includes the balloon payment before paying you the balance. If the amount is too little to cover any outstanding monies, you will have to settle the amount from your pocket. The result will leave you without a vehicle If you decide to trade in your vehicle, at Auto Pedigree, we will conduct an appraisal and offer you a market-related settlement to use to pay off your existing balance. If the trade-in does not cover the full settlement, you will have to pay the outstanding amount or refinance it.
Guaranteed buy-back/ Guaranteed Future Value (GFV) is increasingly becoming a popular vehicle finance option in South Africa. We all know that your vehicle depreciates the minute you drive out of the dealership. However, GFV assists you to calculate its future value when terms and conditions like mileage, service and maintenance among others are met. What this means is that you will know exactly what your vehicle will be worth once the pre-determined contract terms have been stipulated. These are usually between three and four years.
Here is your choice:
Enter into another GFV deal and drive away in the latest vehicle model.
Settle the outstanding amount and own the vehicle.
Return the vehicle and walk home, provided that all terms and conditions have been met as agreed.
Now that you have a better understanding of what financial options are at your disposal, you can well-informed decisions about financing a vehicle. If you have any further questions, contact Auto Pedigree – we also have financial arrangements with all major banks in South Africa and can help you find the best package for your needs.