What you need to know about vehicle finance – Buying a car is not only one of the most important practical decisions in a person’s life, it is also one of the most important financial decisions. Since most people cannot afford to buy a new automobile outright, dealers offer a number of financing options to make their stock accessible and affordable.
CMH Honda Menlyn has highlighted the key fundamentals one would need to know when considering vehicle finance.
First things first is considering your budget, how much will you be able to pay on a monthly basis for the vehicle.
Banks generally recommend that the price of your car should not be more than 30% of your annual gross salary, and your monthly costs should be no more than 10%. You can lower your monthly premiums by putting down a greater deposit for the vehicle.
The next thing to consider is the interest rate you will be paying for your new vehicle. The interest rate is the amount (or fee) charged by your bank or lending agency of your choosing to borrow the money for your new car. Interest rates can vary widely from lender to lender based on how much of a financial risk they think you are based on your credit rating.
There are two types of interest rates – linked and fixed.
A fixed rate means you will be charged the same agreed-upon rate for the duration of the loan and your monthly instalment will stay the same.
A linked rate means that the rate is linked to the prime lending rate of South Africa, so when this increases, so will your instalment. When it decreases, you’ll pay less.
You can decide on the payment duration, the longer the payment term the more money you’ll end up paying in interest fees.
The next thing to consider is if you would like to have a balloon payment.
A balloon payment is a lump sum owed to the lender at the end of a loan term after all regular monthly repayments have been made. This allows you to repay only part of the principal of your loan over its term, reducing your monthly repayments in exchange for owing the lender a lump sum at the end of the loan term.
The primary benefit of a balloon payment is that you’ll pay less on your monthly repayments throughout the lifetime of the loan. This in turn can provide a range of additional benefits, such as increasing affordability and maximum loan size, assisting with cash flow management, and more closely matching the repayment of the loan’s principal with the vehicle’s value over time.
The last thing to contemplate when purchasing a vehicle is the insurance. Vehicle insurance is not include in the finance.
Car insurance is a contract between you and the insurance company that protects you against financial loss in the event of an accident or theft. In exchange for your paying a premium, the insurance company agrees to pay your losses as outlined in your policy.
Come into CMH Honda Menlyn and see what vehicle finance amount you qualify for.