Industry news 16.8.2018 08:00 am

The car buying options journey

Keeping within the range of what your budget can support is critical to avoid over-indebtedness.

With more vehicle finance options than ever before, car buyers are often faced with a long list of confusing
terminology and cryptic numbers before they can even think about driving away in their new wheels.

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“The temptation of a new car can sometimes lure a buyer into a commitment that isn’t an ideal fit for their budget,” says Ghana Msibi, WesBank’s executive head of sales and marketing.

“Fortunately, there are flexible finance options for buyers to choose from. WesBank wants to ensure that all consumers fully understand what’s available, so they can make smarter, more responsible decisions on their car buying journey.”

WesBank has taken three of the most common purchase plans and simplified the jargon to help buyers choose the best payment plan for them.

Instalment finance 

This is the most straightforward of all vehicle finance options.

Monthly repayments are calculated on the purchase price of a vehicle minus whatever deposit is put down at the start of the deal.

Finance terms can be structured into time-frames of between 12 and 72 months.

The longer the term, the lower the monthly repayment will be, but be aware that interest will add up over longer terms and the total amount repaid to the bank will increase proportionally.

Instalment finance with a balloon payment 

Similar to instalment finance, except a portion of the purchase price is set aside so that the repayments are calculated on a lower amount.

Simply put, balloon payments are similar to deposits except they’re payable at the end of a term instead of at the beginning.

Buyers must be cautious of the amount put into a balloon because they will be responsible for the lump sum once the finance term is finished.

While it may be attractive to have lower monthly repayments because a larger chunk of the purchase price is placed into a balloon, the repayment of a balloon can be an unexpected debt as this amount will either need to be settled or refinanced at the end of the deal.

Guaranteed future value 

Guaranteed future value, also known as GFV or any number of brand-specific titles, is becoming an increasingly popular form of vehicle finance in South Africa.

A GFV plan calculates what the future monetary value of a car will be if specific conditions of vehicle condition, mileage and maintenance are met.

This future value is guaranteed at the start of the agreement.

So consumers know exactly what their car will be worth once the pre-determined contract term (usually three to four years) is reached.

The customer then has three choices. They can enter into another GFV deal and drive away in a new vehicle, settle the outstanding amount and own the car, or return it to the dealership and walk away (provided the allotted mileage wasn’t exceeded and the vehicle is in an acceptable condition).

With a GFV plan, a consumer is essentially paying for the use of the car.

This is why it’s important to know more or less the distance the vehicle will cover. Consumers are liable for penalties if any conditions of the GFV agreement aren’t met.

WesBank offers a purchase price calculator to determine the loan amount your budget will support. There’s also a vehicle finance calculator to help work out monthly repayments based on term length, deposit, balloon amount and interest rate.

Every WesBank-approved car dealership has a finance and insurance executive who can give you financially sound advice.

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