Car loans in South Africa
If you plan to use a loan to finance the purchase of your car, you should learn how to get the best one.
The most effective strategy in this case is to plan everything in advance. You should be fully prepared to get finance at the time of purchase of the car. This will make things easier for you. Besides, you will have the highest chances of getting the vehicle that you want. You will save time and money as well.
1. Boost your credit score
The first thing which you need to do is to go over your credit record. You have the right to obtain a free credit report on an annual basis so you should not hesitate to take advantage of this opportunity. Go over the information carefully and watch out for errors.
If you find any, you should request to have them fixed immediately. If you find any blemishes like late or missed payments, you should do what it takes to resolve the situation. All of these efforts are totally worth it since a good credit record will help you to secure lower interest rate.
2. Calculate affordability
The most important thing which you need to decide on is how much you are prepared to spend on a car. You need to determine your budget range or set a fixed budget for the purchase of the vehicle.
You should have a precise idea of the down payment which you are able to make based on your savings and future plans. Then you have to calculate what chunk of your monthly income will go towards the repayment of the loan.
You should watch out for the emotional element associated with buying a car. If you are totally swept off your feet by a vehicle, but it is way over your budget, the dealer may try to give you a deal which seems affordable, but is actually quote costly.
One of the main tricks which dealers use is to offer a larger loan amount with a longer repayment term. That way, the monthly instalments become smaller, but since interest is charged for a longer period of time, the loan can become quite expensive.
3. Plan for the future
What seems like a great deal now may actually turn out to be a costly mistake in the coming years. That is why you should plan ahead. You need to calculate the total loan amount precisely based on the down payment and on the term of the loan.
It is certainly easier to place a smaller down payment now and to take out a bigger loan. However, the larger principal amount will make the loan more expensive. In this way, you can end up owing more on your vehicle than its actual value given the high rate of depreciation of the modern automobiles.
You should use a loan amortisation tool like a spreadsheet or a calculator to find out exactly what you will pay in the form of interest and principal repayment every month. This will give you an idea of how much equity you will be gaining in your vehicle as the time passes.
With a car, you should be extra careful about upside down loans. The vehicle loses value at a faster pace than the pace at which the outstanding loan balance decreases.