WesBank clarifies vehicle finance terms

WesBank clarifies vehicle finance terms

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Few things in life can compare to the joy of buying a new car, especially when it’s one’s very first dream car. Getting behind the wheel of that dream car, however, requires financial means that most buyers just don’t have.

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To bridge this affordability gap, banks have developed a number of vehicle finance products and services to suit different customers’ needs.

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Instalment finance

This is the most common of all vehicle financing options. Monthly repayments or instalments are calculated on the purchase price of a vehicle, minus whatever deposit is put down by the car buyer at the start of the finance contract. The financing term can range between 12 and 96 months. The longer the term, the lower the monthly repayment will be. However, interest is charged for the duration of the contract.

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Instalment finance with a balloon payment

The instalment finance contract with a balloon payment is similar to the traditional instalment finance deal, except that a portion of the purchase price—up to 35%—is set aside until the end of the finance term. This is done to bring down the monthly repayments, as they are calculated on a lower amount. Unlike a deposit, a balloon payment is due at the end of the financial term. Since buyers will be liable for the lump sum upon the end of the finance period, buyers should exercise careful consideration around balloon payment terms. It's crucial for consumers to understand that a balloon payment finance contract calculates interest based on the entire vehicle purchase price, which includes the balloon amount.

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Customers should set aside some of their monthly instalment savings to cover the balloon payment. If the customer is able to pay off the balloon amount at the end of the financing term, there are no additional interest charges. Alternatively, the customer has the option to refinance the balloon amount. If the customer cannot settle the balloon amount, it can be refinanced, incurring interest from the start of the new finance contract.

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Guaranteed Future Value

GFV plans are becoming increasingly popular in South Africa. As a vehicle ages, its value depreciates 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 are met, including mileage and maintenance. This future value is guaranteed at the start of the agreement, making it easier to plan ahead.

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An additional benefit is that, at the end of the prearranged contract term (typically three or four years), the customer can get a good idea of how much their car will be worth. At this point, the customer has three options: either they can enter into another GFV deal and drive away in a 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 good condition.

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Despite the benefits of guaranteed future value agreements, it's crucial to remember that non-compliance with the conditions of the GFV contract can result in penalties. With a GFV contract, the consumer is essentially only paying for the use of the vehicle. This is why it’s important to know more or less the distance that the vehicle will travel during the GFV term.

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Understanding the various vehicle financing options available can help prospective car buyers make informed decisions based on their financial situation. Whether you choose traditional financing, a balloon payment plan, or a guaranteed future value agreement, it is critical to consider the long-term implications and plan accordingly. WesBank's range of tailored finance products ensures that every buyer can find a solution that fits their needs, making the dream of owning a car more accessible than ever.

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