There’s no denying the fact that having your own vehicle is essential in South Africa. For most people, qualifying for vehicle financing is the first step in the process of owning a car – but should you necessarily opt for bank vehicle financing? Here are a few reasons why you may want to give the bank a skip when it comes to buying a car.
Bank vehicle financing is costly
Ask anyone who is paying off a car at the moment, and they will tell you that their monthly instalments are taking a big chunk out of their monthly budget. To make matters worse, a large percentage of the monthly instalment you’re likely to pay as a bank customer goes toward interest payments. This inflates the actual cost of your vehicle by as much as 50% by the time you’ve finished paying it off.
In other words, a R200 000 car could end up costing you R300 000 once it’s paid off – that’s R100 000 of your hard earned money!
Qualifying for financing is getting harder each year
When you apply for vehicle finance from the bank, you need to prove that you have a spotless credit history (with no judgements against your name or outstanding payments) and that you can afford the monthly car instalment as a part of your household budget (this is called an affordability assessment).
Once the bank is satisfied that you meet these stringent requirements, it will consider your application – but for many South Africans it is becoming seemingly harder to qualify for credit and afford the monthly instalments.
Balloon payments can cost you a fortune
If you’re new to the ins and outs of the car financing game, here is some valuable advice: never agree to a balloon or residual payment and this is why:
Many vehicle finance plans allow you to deduct a chunk of your vehicle’s purchase price and pay it right at the end after your last instalment has been paid – this reduces your monthly instalment, but the balloon payment (the original chunk that was deducted at the beginning) will be due as a lump sum. Depending on the price of your vehicle, this amount could vary from R20 000 to over R200 000.
Lease to buy: a better option all-round
By now, you should have a clearer picture of the downsides that come with bank vehicle financing – but what better option do you have? Leasing to buy offers lower payments, a less complicated application process, and doesn’t require a perfect credit score. If you’d like to get behind the wheel without all the added hassle of bank financing, contact us today.