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Improve your car finance knowledge before buying
When buying your first vehicle, it’s a big step towards meaningful economic participation. Whether it’s for work or growing your side hustle, owning a car involves much more than just getting from point A to B, it opens doors, broadens your horizons, and gives you the freedom to move. That said, paying a large amount of cash upfront for a car isn’t practical for all buyers, especially in today’s economy. That’s where car finance comes in to help, and it’s important to understand the options available before making an informed decision that suits both your budget and your future goals. So we take a look at the most popular finance choices in SA:
The original: Instalment sale
Dubbed the classic and straightforward method of car finance:
- How it works: It’s a straightforward method that lets you borrow the full amount for the car from a financial institution and then pay it back with interest in monthly instalments over an agreed period. The period is usually between 56 and 72 months, and once the last payment is made, you take full ownership of the car.
- The upside: It’s simple and gives you complete ownership from the start, which is ideal if you’re looking to keep your car for a long time and build value over time.
The plot twist: Instalment sale with a balloon payment
Oftentimes, you’d hear car salespeople mentioning balloon payments, and honestly, it can be very tempting when you are just starting out, as it offers lower upfront monthly payments.
- How it works: A big final payment is due after you’ve made smaller monthly instalments over the loan period. It lets you pay lower monthly amounts initially, but you’ll need to pay off the remaining balance in one go in cash, refinance or trade in the car to cover it when the loan ends. Simply put, to fully own the car, you’ll need to pay the sizable balloon sum at the end of the term.
- The upside: On the flip side of the coin, this can lower monthly payments, but there’s a catch, and one to be aware of. At the end, the balloon payment can hit hard if you have not planned or budgeted for it.
The game changer: Guaranteed Future Value (GFV)
Though often overlooked, GFV is regarded as a game-changer, especially for first-time buyers who are still figuring out their long-term plans. It protects customers from the eventuality of vehicle depreciation.
How it works: GFV means the lender sets a minimum value for your vehicle at the end of your contract. You’re basically financing just the gap between the car’s purchase price and that guaranteed value, along with interest. This setup typically results in much lower monthly payments compared to a standard instalment sale. At the end of your contract, typically three to four years, you have three options:
- Trade it in: This means you can swap your current car for a brand-new one through the guaranteed value to settle the old finance. If your car’s value exceeds the GFV, you get to keep the extra.
- Keep it: In the case where you want to keep the car, you can pay the GFV and own the car. This amount can even be refinanced if needed.
- Return it: As long as you’ve stayed within the agreed mileage and maintained the car in good condition (allowing for normal wear and tear), you can just return the keys at the end, no extra commitments are required.
The benefit of GFV is that it relieves you of your depreciation concerns and transfers them to the lender. It also encourages you to keep your car in good condition with low mileage, which helps to preserve its value.
Unlocking your dreams: WesBank's Graduate Finance
It can be difficult to get finance without a credit history, especially when you’re fresh out of varsity or college. This is why WesBank has the Graduate Finance product specifically designed to empower young South Africans. It helps graduates secure vehicle finance even without an established credit history, making it easier to advance their careers, start businesses, and contribute to the economy. For many young South Africans, a car is more than just getting around; it’s a valuable tool for building a career or starting a business. If you’ve got your diploma or degree and a steady pay check, WesBank’s Graduate Finance could be your fast track to freedom and opportunity.
Your next move
Before you sign the papers and drive off in your new car, make sure you do your homework first. Compare interest rates, check repayment terms, and don’t skip the fine print. Know the full cost of the loan, including any extra fees. Choosing the right finance option is an important move toward managing your money wisely.
