How to Finance your Car Purchase

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How to Finance your Car Purchase

Purchasing a new car can be exciting, but it can also be one of the largest purchases you will make. Unless you have loads of money just sitting around, and who does, in these times of financial uncertainty, the purchase of a car will require you to take out a loan of some description.

As with most financial deals, there are certain basics you need to consider carefully, such as being realistic about how much you can afford to repay each month before signing on the dotted line. In general, the larger the deposit that you can put towards the purchase of your car, the lower the monthly repayments will be.

It is also essential that you include the cost of comprehensively insuring your new car in your calculations, otherwise you run the risk of having to continue your payments even if your car is damaged or written off.

Most banks such as ABSA or other financial institutions in South Africa will offer you various options to finance your car purchase, whether it is for a new car or a used one. Check out these alternatives to see which works best for you:

Hire Purchase:
Under a hire purchase agreement, you make regular repayments on your loan for the period of the loan. At the end of the loan period you will have paid off the total loan, plus interest, and will own the vehicle 100%.

Leasing is an attractive option, as it usually entails lower monthly repayments than a hire purchase agreement. It also allows you a choice at the end of the lease period, you can choose to keep the vehicle or simply return it. Of course it’s a little more complicated than that! Under a lease agreement, while your repayments are lower, at the end of the period you will be required to pay a lump sum, known as a residual value, should you decide to keep the vehicle. Depending on your particular agreement, this can be quite a large sum.

If you just want to have the use of a vehicle without the hassles of ownership, then perhaps a rental agreement could be the answer. Of course, at the end of the rental period you will have no car to show for your money.

Personal Loan:
Rather than a specific car loan, you could consider taking out a personal loan, but these often attract a comparatively higher interest rate.

Which method works best for you depends on your particular circumstances, but do your homework before you rush out and purchase your dream car.

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