WesBank explains jargon in vehicle financing
It is critical to understand the meaning and implications of financial terminology, because once you have signed on the dotted line, there is no going back.
WesBank has developed a simple glossary of some of the most common car finance jargon and frequently used terms to help consumers better understand the lingo when reading, researching and applying for car finance. Once you have grasped the meaning of the terms, you will be much more confident about your car finance knowledge when it comes to putting your signature to the contract.
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, however, be aware that the interest will add up over a longer term, increasing the total amount repaid to the bank proportionally.
Balloon payment
This is the final payment due at the end of balloon type finance agreements, which allows you to take ownership of the car. Think of it as a deposit, but one that comes at the end of the finance term agreed on and not at the beginning. Balloon payments work best with financially savvy buyers who have the ability to put aside all the money they save on monthly instalments to be ready to make the balloon payment when the time comes. The final amount owed to the bank at the end of a balloon payment agreement is also known as the residual value.
Guaranteed future value
Guaranteed future value (GFV) allows buyers to calculate what the monetary value of their vehicle will be at the end of their contract period (usually between three and four years). When this is reached, the customer is given three choices: enter into another GFV deal and drive away in a new vehicle, settle the outstanding amount and own the vehicle, or return the vehicle to the respective dealership and walk away. The fine print in GFV deals states that drivers cannot exceed a pre-agreed total mileage and the vehicle should be in an acceptable condition according to the terms in the agreement. It is always important to read and understand the fine print!
Deposit
A deposit is a sum of money paid upfront and deducted from the total amount financed by a bank. The larger the deposit, the lower your monthly repayments will be. A healthy deposit also means that the total cost of finance will be less, as interest will be calculated on a lower amount.
Settlement
A settlement is the total amount required to settle or completely pay off a loan to take ownership of your vehicle. Finance settlements can be quoted at any stage during a contract period, but are time-sensitive, and thus can vary from one day to the next, depending on the outstanding amount still owing to a bank.
Interest
Interest is the price you pay to borrow money from a bank. The total amount borrowed plus the interest must be paid back in agreed monthly payments over the life of the finance agreement. There are two types of interest rates car buyers can choose from at the start of an agreement – fixed or linked. Fixed means the agreed interest rate does not change for the duration of your loan period, while linked means interest rates may vary depending on what the bank’s prime lending rate is at any given time. Interest rates are determined by the Reserve Bank rate.
“Always read the full contract, including the terms and conditions in the fine print, and ask as many questions as necessary to ensure you completely understand,” explained Kutlwano Mogatusi, WesBank Motor’s communications specialist.
Source: MotorPress
