Understanding vehicle finance
Vehicle finance can be paid off according to three different methods: instalment finance, instalment finance with a balloon payment, and guaranteed future value.
Instalment finance is considered the traditional option and it entails putting down an initial deposit and settling the remaining amount by paying monthly instalments. These instalments will include a unique interest rate, based on your affordability index. You’ll continue paying these instalments until the full amount has been settled.
Instalment finance with a balloon payment can be seen as doing the same thing backwards. Instead of putting down a deposit for your new car, you will immediately start paying instalments instead. Once you’ve done so for a pre-arranged period, you will be required to make a final, large payment to settle the remaining debt.
While this means you don’t need a deposit when you take out vehicle finance, it does mean that you will have to save up for your balloon payment during the time you’re paying your monthly instalments.
Guaranteed future value is the third and last method you can make use of. This entails the bank estimating the future value of your dream car – or the value it will have once it’s been paid off – and dividing it into instalments. You will then gain access to your ideal car and pay lower instalments, but the bank will repossess the vehicle once its future value is paid off.
If you’d like to find out more about the financial details of each of these options, have a look at our article in which we compared these three options and found out which one is cheaper. However, note that in spite of the cheapest option, you must consider your unique needs when selecting a method.
How much can you expect to pay?
The best way to find out what your monthly instalments with each of the above methods might be is to make use of vehicle finance calculators. At Justmoney, we have our own vehicle finance calculator, which you can access by clicking here.
Once you’ve clarified your base amount, you can also have a look at what each of the top South African banks may charge you. In the following article, we gathered the official links to their calculators where you can find out what your monthly instalments might be.
Before you get started
The interest rate you are charged on your vehicle finance instalments will have a large impact on the amount of money you eventually pay towards your dream car. If you are offered vehicle finance at a high interest rate, you will ultimately pay more than someone who’s offered a low interest rate.
The best way to ensure you are offered vehicle finance at a lower interest rate is to take care of your credit record or credit score. This is what lenders look at when they consider you for credit, such as vehicle finance, and they gather this information from one of the three credit bureaus. Have a look at our nifty guide on credit scores to make sure you’re in the loop with how this works.
You can also receive a free credit report by clicking here.
Besides taking note of your credit score, lenders will also look at how much you earn and what your monthly expenses are. This, along with your credit history, will determine your interest rate. Before taking out vehicle finance, consider these factors and ensure they balance out in your favour.