If you're like most people, paying cash to buy a new car just isn't in the realm of possibility. And even if it's in the realm, you may not want to deplete your savings account to buy a new vehicle. This means that you're either going to be leasing the car, or buying the car by financing it. If you're buying, then you're probably financing it through the dealership, a bank or credit union, an online financial institute, or maybe even a family member.
There are several different ways that you can finance your car, and there are pros and cons about each of them.
Pros: Convenient, fast, sometimes competitive
Cons: High pressure, usually not competitive; be prepared for a big sales push on add-ons; loans are often front-loaded (payments are made up of more interest in the beginning of the loan than toward the end -- that's bad if you think you may be paying the loan off early.)
Pros: Competitive rates, personal service, no sales pitch for add-ons; often can tell you if you're paying too much for a car; often provide free life insurance or disability insurance with loans; loans are usually simple interest loans (interest spread evenly throughout the term of the loan)
Cons: Not as convenient as dealership financing -- can't set it up at night or on the weekend
Online financial institutions
Pros: Usually competitive rates, quick, easy
Cons: Not a personal service; dealing with an unknown; some scams to watch out for
Family members or friends
Pros: Personal service, easy, sometimes flexible; usually competitive rates
Cons: Could jeopardize a relationship
Determining the Rate
The interest rate you get when financing a new or used car can vary quite a bit from the advertised rates you see on TV or read about in the paper. Probably the biggest influence on your rate is your credit rating. Your credit history and credit score tell lenders a lot about your money habits and are designed to give them an idea of what their risk is if they loan you money. They often raise the interest rate if your loan is seen as high-risk.
Another thing that affects the rate you get is the length (term) of the loan. Typically; the shorter the loan, the lower the rate. Keep in mind that the shorter the term, the higher your payments will be.
Used cars will have higher rates than new cars. The newer the car; the lower the rate. (You may find an exception to this rule at some credit unions. Some give the same interest rate for new and used cars.)
Your geographic location can also be a factor in the rate you get.
Interest rate, term of the loan, down payment, rebates, and monthly payments: Remember you can negotiate that interest rate. Make sure every element is spelled out on your contract and is correct. Don't sign until you're satisfied that all of the numbers have been filled out correctly. Also, make sure the interest rate you are agreeing to doesn't change during the term of the loan (linked to the interest rate), and ask about prepayment penalties. Remember that the bottom line is how much you're paying for the car, not what your monthly payment is. You may be getting a really low monthly payment, but how long will you be paying it? Almost any payment level can be reached if the loan term is long enough.
Some other things to keep in mind when financing a vehicle:
Banks generally do not finance vehicles for under R 40,000.00 Generally do not finance cars older than 5 years old Generally do not finance care with more than 110,000 kms on the clock You will need a credit rating of 4 and up The vehicle must be in running order and you will have to have insurance in place before you can sign your finance agreement. For the insurance to be approved you will need a valid driver’s license
Some requirements will be amended to accommodate the deal if it’s worthwhile for the finance institution.