Spelling out financing options for buying wheels

Brian Joss – When it comes to buying a new or used vehicle, consumers are often confused by the different payment options available to them.

Often, as a result of the elevated excitement, consumers don’t ask enough questions during the purchasing process. Buyers tend to just want to get the keys to the car and enjoy the new experience. With consumer budgets becoming even more stretched, it’s important that consumers understand all the vehicle finance options available to them in order to opt for the deal best suited to their affordability.

Guaranteed future value which is also known as GFV, is becoming an increasingly popular form of vehicle finance in South Africa.  This product appeals to a changing customer – a customer who is seeking to avoid any risks at the end of the term and one who is interested in ‘usership’ of the vehicle versus full ownership, wanting the option to drive a new vehicle every three or four years.

“Flexible finance options are important and are also available. Consumers need to be better equipped in understanding what agreements are available to them so they can make the finance decision that best suits their economic status, especially with the country’s ongoing market changes, says Ghana Msibi, WesBank Executive Head of Motor.

It is important to note that a vehicle’s value begins depreciating (losing monetary value) from the moment it leaves the showroom floor. Therefore, a GFV plan helps to calculate what the future monetary value of a vehicle will be, provided the vehicle condition, mileage and maintenance agreements are adhered to. This guaranteed future value makes planning ahead easier as consumers know exactly what their car will be worth once the pre-determined contract term (usually between three and four years) is reached.

At the end of the pre-determined contract term, the customer is given three choices – they can either enter into another GFV deal and drive away in a new vehicle, settle the outstanding amount and own the vehicle, or simply return the vehicle to the respective dealership and walk away (provided the driver didn’t exceed the allotted mileage and the vehicle is in acceptable condition according to the agreed terms).

Other vehicle finance options include: 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 inconvenient debt as this amount will either need to be settled or refinanced at the end of the deal.

WesBank offers a handy Purchase Price Calculator to help determine the loan amount your budget will support. While this calculator is only used for estimation purposes, it’s a good indicator of the price range in which you can shop. There’s also a Vehicle Finance Calculator to help work out monthly repayments based on term length, deposit, balloon amount (if you choose this finance option) and interest rate.

CAPTION:  Wide choice: ask more questions, advises WesBank

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