Vehicle Finance

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Vehicle Finance

What is vehicle finance?

Vehicle finance is a type of secured loan specifically used for buying car, either privately, or from a dealership. This type of finance is specifically structured for financing a car and therefore cannot be used for other types of purchases. Vehicle finance is a product available mostly only at banks or financial institutions that specifically list it as a product.

2 Types of vehicle finance

Within these two types of finance there are also different agreements that will be made with the financial institution that is financing your vehicle. These agreements are usually in the form of the following:

  • Instalment sale agreement
  • Lease agreement

Dealership finance

When you buy a vehicle from a dealership you will apply for this type of finance. It is structured to insure and protect you with the correct finance for buying a vehicle from the dealership, new or used.

Private vehicle finance

Private vehicle finance options are specifically tailored for buying a vehicle from a private individual.

What will you need to apply for vehicle finance?

Please bear in mind these are general guidelines as to what a typical application will require.

  • Employed or self-employed
  • 18 years or older
  • Earn a salary that more than covers your monthly repayment and a healthy credit record
  • Proof of income with payslips covering the 3 months prior to the application
  • ID
  • SA driver’s licence
  • Residential proof
  • Any applicable National Credit Act documents

Important tips for taking out vehicle finance

Interest rates

Interest rates are one of the biggest influencers on repayment amounts when it comes to vehicle finance repayments. The better your credit record, the better interest rate you will be offered in most cases. The interest rate will most of the times be a certain percentage attached to the repo rate and along with the deposit you put down, determine the affordability of your monthly repayment amount. There are two types of interest rates that you will be able to choose from:

  • A variable interest rate option - will give you a interest rate attached to the repo rate and will change according to fluctuations in the repo rate.
  • A fixed interest rate option -  might incur a higher interest rate offer because the bank creates a small buffer for itself if you have a fixed interest rate that will stay way below high changes in the repo rate.

Deposit

Although it is considered an act of goodwill to put down a deposit for your vehicle finance application, there is no legally binding reason to do it, according to the National Credit Act. Apart from it being an act of goodwill, it is considered by most as a wise financial move. Putting down at least a 10% deposit will dramatically influence your repayment amount. It is generally accepted, that the bigger the deposit of the total amount of the vehicle, the shorter your repayment term can be and the lower your repayment amount can be.

Financial buffer

As with any solid financial strategy, it is important to have a financial buffer in place above your disposable income for any types of loan repayments that will go off your accounts. Living on the edge and just making payments can be exhilarating for some, but a few defaults on your payments later will influence your credit score. A bad credit score means higher interest charges on future vehicle financing offers and payments that you find yourself in.

Fees

Always make sure of the fees included in any transactions, contracts, or processes involved in buying the car and transferring the ownership to you.

Vehicles

This might be more important for second-hand vehicles, but is also advisable for new vehicles, it is always a great idea to thoroughly check the vehicle you want to purchase. This means carefully combing through its interior, exterior and engine to ensure you have personal confirmation of its well standing.

Insurance

No quality dealership will allow you to drive a new vehicle of its premises if you don’t have it covered on an insurance plan. As a dealership finance product, the dealership has taken a risk along with the bank or financial institution in financing the deal. This means that any risks that could influence the value or repayments of the vehicle needs to be covered by a trustworthy insurance option.