Advertorial: Cracking the car finance code

Advertorial: Cracking the car finance code

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You've worked hard, you've aced your exams, and you've landed the perfect role in your career. Now it's time to reward yourself with a shiny new ride, and whether you want a brand new model or a pre-owned gem, you'll need some help to make it happen.

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The only way to get help is through vehicle finance and the process can be daunting for inexperienced and first-time car buyers. To help you navigate the maze of car finance terms and avoid any nasty surprises, WesBank has compiled a handy guide that explains the most common jargon you'll encounter when you're shopping for your dream wheels.

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Instalment Finance

Though it sounds straightforward, it can be tricky if you aren't familiar with what instalment finance is. In layperson terms, instalment finance is monthly repayments that are calculated on the purchase price of the vehicle, minus the deposit that's been paid at the time of signing the deal.

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These can be structured either over 12 or 72 months, but keep in mind, the longer the term, the lower the monthly repayment will be. There's a catch, though, the interest will add up over the long term, which will then increase the total amount to be repaid to the bank.

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Balloon Payment

Probably one term that always comes up before a vehicle purchase deal is signed and forms part of vehicle finance. Don't be caught off guard; a balloon payment is simply the last payment that's due at the end of the finance period and not at the beginning.

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This type of vehicle finance option allows buyers to have lower monthly instalments by paying a large sum of money at the end of the loan term. The final amount is calculated based on the residual value of the car or the original cost or balance of the loan. It's very important to familiarise yourself with all the pros and cons of a balloon payment before sealing off a deal.

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Guaranteed Future Value

Imagine you could drive your dream car today and not worry about how much value it'll lose over time. That's what this option offers you.

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For example, buyers can have a lower monthly instalment by deferring a large balloon payment until the end of the term. Once a buyer has reached the end of the term, they are given three options; to trade the car for a new one, to retain it by paying or refinancing the balloon payment, or to return the car to the dealer. The choice is yours. The latter is subject to fair wear and tear and mileage conditions; otherwise, extra fees may apply. So make sure you do your homework and read the fine print before you commit to this option.

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"Unpacking the jargon and understanding the lingo associated with car finance terms will stand you in good stead and empower you to make the best choice to suit both your budget and your needs when making your next vehicle purchase. Always read the full contract, including the terms and conditions in the fine print. Also, ask as many questions as necessary to ensure you completely understand," explains Lebogang Gaoaketse, WesBank Head of Marketing and Communication.

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Deposit

Probably the most famous term in the world of vehicle finance. As its name suggests, a deposit is an amount of money that a buyer pays upfront and deducted from the total amount that's been financed by a bank.

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Keep in mind that the higher the deposit amount, the lower the monthly vehicle instalment. This also means that interest will be calculated on a lower amount.

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Settlement

While it's often overlooked, settling your vehicle finance account in full is king. This will allow a buyer to finally take ownership of their vehicle. A settlement is often calculated based on the remaining balance of the financed amount, interest rate, fees, and penalties of your loan. After settling the finance amount, buyers can then request a paid-up letter that states that the settlement amount has been paid up.

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Interest

The truth of the matter here is that securing a loan is a great thing, but don't be entangled in huge interests as these can catch one by surprise. Interest is the price that a buyer pays to borrow money from a bank, and it is often classified as either fixed or linked. Speaking of fixed interest, this option doesn't change for the entire duration of your loan period while linked fluctuates as determined by the South African Reserve Bank rate.

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"Make sure you are comfortable with the terms and know exactly what you are agreeing to. Once you add your signature, the contract becomes a legal and binding document that you need to honour," concludes Gaoaketse.

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