Tips to find the best vehicle finance in South Africa
Most of us do not usually have sufficient money lying around to purchase a vehicle. If you’re in need of a car, motorbike or even a leisure vehicle, then you may require a loan. Before you dive into comparing South Africa’s best vehicle finance providers, consider reading the guide below.
What is vehicle finance?
Vehicle finance or car finance is money lent to a borrower to purchase a new or used motor vehicle. The money can be provided to purchase anything from a car, to motorbike or even a caravan or classic car.
South African banks and other lenders best deals range between R10,000 and R300,000. The “term” (length of the loan) can be from as little as one month up to 84 month (7 years).
Once the money has been provided to purchase the vehicle, it will have to be repaid with interest. Some lenders may also charge an initiation and monthly fees to cover the overhead of managing the loan.
How does vehicle finance work?
- Find a suitable vehicle and agree on price;
- Apply for finance;
- Sign a purchase agreement with the seller;
- Provide a copy of the purchase agreement to the lender;
- The lender will pay the seller of the vehicle;
- You repay the lender over 12 to 84 months.
How much can I borrow for a car?
How much you can borrow depends on you:
- Income
- Expenses
- Assets (your vehicle can be used as collateral to reduce your interest)
- Debts and potentially liabilities such as your credit card limit
- Credit score
Essentially, the lender wants to see if you have enough money at the end of the month to repay the loan. Do a calculation of your current income and expenses to see what you have left over (consider other overheads such as car insurance, petrol and maintenance).
The calculator above the table can help you see your approximate repayments and see the best vehicle finance options.
How to compare lenders
The loan that’s most suitable for you, may not necessarily have the lowest interest rate. Are you looking for a secured or unsecured loan? Did you want to have a balloon payment or not? What are the initiation/establishment and monthly fees like?
Interest rates
In South Africa, there are two types of interest rates: Advertised rate and APR (annual percentage rate). The advertised rate is simply the interest rate on the car loan. The APR includes all of the associated expenses (monthly fees, initiation fees and interest rate) expressed as a percentage.
Your interest rate will vary depending on a number of factors, such as the provider, whether the loan is secured or not and your credit rating.
Fees
There are four main fees associated with car loans:
- Initiation fee. It may also be referred to as establishment or application fees.
- Servicing fees. Usually paid monthly.
- Early termination fees. These may only apply to loans with outstanding amounts. greater than R250,000. If the outstanding amount is lower than R250,000, no penalty will be charged for early settlement.
- Balloon payment. Also known as a residual payment, it is usually expressed a percentage. For example, if you borrow to R300,000 and you opt in for a 25% balloon payment: That means you’ll significantly reduce your monthly repayment, however, you will need to provide a lump sum of R75,000 (25%) at the end of loan term.
Loan features
Some loans vary in the features that they provide, for example:
- Fixed or variable interest rates.
- Penalty free early repayments on amounts over R250,000.
- Minimum and maximum loan terms. Long terms reduce monthly repayments, however you pay more in interest and fees over the long term.
- Secured and unsecured loans. Secured finance usually means a reduced interest rate.
Length of a loan
In South Africa the term (length or duration) of the loan typically varies between 6 and 72 months. However, some lenders allow for longer terms.
Types of vehicle finance
All with their advantages and disadvantages, there a number of types of car finance options available:
- Unsecured vehicle finance. A loan where you’re not required to provide collateral or security.
- Secured vehicle finance. A loan where your car or other assets can be used as collateral or security for the loan.
- Car lease. You rent the vehicle for a set period of time with the option of buying or returning the car.
- Novated lease. Similar to a car lease, however, your regular repayments also include the costs of operating the vehicle such as maintenance, insurance and sometimes petrol. Done through your employer, the repayments are usually deducted out of your pay. At the end of the lease you have the option to purchase or return the car.
- Operating lease. Similar to a car lease, however a company/commercial entity takes out the lease.
- Commercial hire purchase. Similar to a hire-purchase agreement, where you own the car at the end of lease agreement.
The lender
You may already be a customer of one of the major South African banks. While it may make applying for the loan easier, they may not necessarily provide the best deal. So be sure to shop around!
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