| You’ve made the decision to buy a vehicle but you realise you’ll need to get a loan to get a vehicle that suits your needs. The first step to understanding what you are in for is to get an idea of what all those terms mean, and how they may impact on your budget. |
Vehicle financing is a specialised field , with many terms and phrases that are gobbledegook to the average person. Here is a quick guide to what some of those terms mean.
DEPOSIT
his is the amount you will need to save up before you set out to borrow the rest of the money needed to buy a new or second-hand vehicle. It is possible to get a 100 % loan on a vehicle, but usually https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg houses will specify a deposit anging from 10 or 20 % of the purchase price. So if the vehicle costs R200 000, a 10% deposit will amount to R20 000.
INTEREST
he banks or https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg houses will charge you interest on the money they loan you. This interest will be paid off as part of your monthly repayment, while each month part of your payment will also go to reducing the original amount that you orrowed. Generally you can get loans at a fixed interest – where the interest you pay will be an agreed amount for the duration of the loan period, or one that varies according to something called the Prime Interest Rate.
PRIME RATE
The Prime Lending Rate – normally referred to by https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpegs houses merely as “Prime” – is fixed by the South African Reserve Bank. This rate fluctuates and is currently at 7%. Depending on your credit record and provable income, a https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg house will typically lend you money on a vehicle repayment scheme at an interest rate of between 7 and 10%. In other words “Prime”, or “Prime-plus three”. aying a reasonable deposit on a vehicle, and submitting proof that you are more than capable of meeting those monthly repayments on your budget, will sually encourage a https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg house to offer you a competitive interest rate on your repayment contract. So use us to do the shopping around for you, and to get you the best interest rate.
INSTALMENT FINANCE
This is the most straight forward type of financing. Repayment period options for instalment financing typically range from 12 months to 72 months, or one to six years. The shorter the loan period, the higher your monthly repayments will be. But the longer the instalment period, the more interest you will be paying on the amount borrowed.
BALLOON PAYMENT
This a repayment scheme that allows you to effectively repay a lump sum of money on the loan at the end of the repayment contract, rather than paying a deposit up front. The benefit of a balloon payment is that it allows you to buy a vehicle before you have saved up a deposit and still enjoy driving the vehicle immediately. The main immediate benefit is that your monthly payment on a balloon scheme is lower than if you had simply opted for a straight instalment https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg scheme.
BALLOON PAYMENT PITFALLS
Many reputable https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg houses recommend avoiding the balloon payment scheme. For example, with a 20 % balloon payment falling due at the end of a 72 month contract, this will mean that after paying your last (more affordable) monthly instalment, you will be due for a lump sum of R40 000, if the amount you borrowed was R200 000. In many cases, the only way of raising that amount of money is to sell the vehicle. And vehicles depreciate considerably in value each year, especially if they are not properly maintained. You may find that your vehicle’s market value at the end of the https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg contract may barely cover the cost of that balloon payment. Which means you will be back where you started, after six years and scrimping and scraping to make all those monthly repayments!
SETTLEMENT
his the term referred to by https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg houses of paying off your loan agreement earlier than the agreed repayment period. This typically happens when you want to buy a new (or newer) vehicle before the end of the agreed loan period. The https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg house will then work out a settlement amount. This won’t normally happen before a 12-month period has gone by since you bought the vehicle, as https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg companies make their money by the interest they charge you on as loan, and the longer the loan period, the more money they make. So read that contract vehicle fully, regarding this clause.
TITLE HOLDER
This is very important! When you enter into a vehicle financing contract, the vehicle will be registered in your name as the ‘owner’. But until you have made the final payment on the loan, the https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg house will be listed on the registration ocument as the ‘title holder’. And the https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg house will retain the registration document until that final payment. In a real sense, the https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg house owns the vehicle until you have made that final payment! Once the vehicle is paid off, the owner should then approach the https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg house for the release of the registration certificate, as well as a document stating that the vehicle has been paid for in full. The owner should then take these documents to the nearest (NATIS) traffic authority and have the vehicle’s registration updated, so that the owner is now also the title holder. You cannot legally sell a vehicle unless you are listed as both the owner and the title holder!
GUARANTEED FUTURE VALUE (GFV)
According to Ghana Msibi, Wesbank’s Executive Head for Sales and Marketing the temptation of a new vehicle can sometimes lure a buyer into a commitment that isn’t an ideal fit for their budget. “Fortunately, there are flexible https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg options for buyers to choose from, ” says Msibi. ” WesBank wants to ensure that all consumers fully understand what’s available so they can make smarter, more responsible decisions on their vehicle-buying journey.” One of these options that Msibi stresses is well worth a look is the GFV option “Guaranteed Future Value, also known as GFV or any number of brand-specific titles, is becoming an increasingly popular form of vehicle https://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg in South Africa. It is important to note that a vehicle’s value begins depreciating (losing monetary value) from the moment it leaves the showroom floor. In line with this depreciation, a GFV plan calculates what the future monetary value of a vehicle will be if specific conditions of vehicle condition, mileage and maintenance are met. This future value is guaranteed at the start of the agreement. “This makes planning ahead easier as consumers know exactly what their vehicle will be worth once the predetermined contract term (usually between three and four years) is reached. The customer is given three choices at this point – they can either enter into another GFV deal and drive away in new vehicle, settle the outstanding amount and own the vehicle, or simply return the vehicle to the respective dealership and walk away (provided the driver didn’t exceed the allotted mileage and the vehicle is in acceptable condition). “With a GFV plan, a consumer is essentially only paying for the use of the vehicle. This is why it’s important to know more or less the distance the vehicle will cover during the GFV term. Consumers are liable for penalties if any conditions of the GFV agreement aren’t met.” Instead of giving up your vehicle, rehttps://www.assethttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpegsolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-rehttps://www.assetfinancesolutions.co.za/wp-content/uploads/2022/03/5-easy-steps-to-refinance-your-vehicle-loan-2.jpeg-your-vehicle-loan-1.jpeg it today at a better instalment to suit your needs. To learn more click here