Can you afford a car? Are you thinking about buying a new one or are you struggling to pay off your existing car loan? Millions of South Africans out there, can't afford to walk into a dealership and buy a car cash. According to FNB expert Eunice Sibiya, it's important to choose a car that delivers affordability above luxury and status.
Whether you're buying a pre-owned or brand new car, you need to be careful what finance agreement you choose otherwise you could find yourself in an extremely terrible financial situation— Eunice Sibiya, FNB Head of Consumer Education Program
To make the financially smart decision when buying a car, you need to understand the different types of vehicle loan structures available to you so that you know exactly what you are signing up for. These are the common types of finance options.
Installment Agreement – the lender owns the vehicle until the loan is fully repaid thereafter the client takes ownership.
Lease Agreement– the client buys with no intention of taking ownership. At the end of the term, the car is returned to the dealer unless the client is keen to take ownership and negotiates otherwise.
It's important to understand that terms and conditions apply for all these agreements. Make sure to step into any agreement wide eyed.— Eunice Sibiya, FNB Head of Consumer Education Program
According to Eunice, a standard car loan has these four basic elements which you should understand
A loan term of approximately 36, 48 or 60 months - However, longer loan terms attract higher interest rates and fees. In the end you'll pay back much more for the loan.
Use the opportunity to pay a deposit - When buying a car, it’s advisable put down a lump sum of cash as a deposit to improve your chance of getting the loan, reduce your monthly repayments and possibly the interest you'll pay on the loan.
Choose between a variable or fixed interest rate - The longer the term of the loan, the riskier a variable rate loan can be, because there is more time for rates to increase along with your payments.
Balloon payments option - Helps to reduce your monthly repayments however you need to understand the financial impact of a balloon payment.
Eunice Sibiya suggests that before you sign, understand the impact of your finance option and you can save money by making smart financial decisions.
Listen to the full audio below