Hacks to successful vehicle finance

Firstly, there are a lot of deals out there. But saying that, just because your SUV must be red, doesn’t mean you can narrow down your search to the only two red cars in Roodepoort! Personally, once I’ve decided on a car, I like to have at least 10 different options to choose from. Minimum.

Why? Because it gives me room to negotiate and move on if the seller won’t budge on the price.

Also, by the time I’m negotiating for a car, I’ve watched more reviews and read more articles on that car than any other person out there. I have Yoda-level knowledge on the car by this stage. And this helps. Trust me.

I tell the sellers stuff about their own car they would never have known. I’m in the market to buy something, not have something sold to me. I know what I want.

Before we commence the sale, let’s get some numbers out of the way.  

There’s something called your debt-to-income ratio. You need to know what percentage of your gross income (that’s your salary before tax and deductions) you can afford to pay towards your debt. The National Credit Act recommendation is that 28% of your gross income goes to servicing debt. That’s all your debt, not just your shiny new V6 two-seater.

If your budgeting skills are not great, why not download Absa’s budget calculator? It’s a great tool to help you establish what your monthly spend amounts to.

And on that topic, remember I told you about researching everything about your car? Well, you don’t want to suddenly find out your shiny V6 consumes 25l/100km! Suddenly, that zippy little city car is looking a little more practical, isn’t it?

Everything about a car costs money. You need that Yoda-level knowledge I mentioned. Trust me.   

So now, let’s say you’ve done your research, planned your finances and you’re ready to buy your new car. Before we let fly, we’re going to need to talk about the repayments. There are a few ways to pay off your car.

Ideally, the bigger the deposit you can afford, the less the loan amount will be, so a sizeable deposit is pretty useful in cutting down on long-term interest costs. So, pay a deposit, then pay off the remainder of the loan.

There’s also the balloon payment, which essentially lets you pay lower instalments, but at the end of the term, you pay the balloon amount, which is usually quite significant. (Not a favourite of mine, this balloon business.) If you can’t pay the balloon, you may need to refinance the car, and then you end up paying it off for much longer!

Of course, you could also pay the vehicle off over a longer period, like 84 or 96 months. But do you seriously want to be paying off a car for eight years, when you only plan to drive it for four?

Whatever repayment path you choose, remember this: your budget will be affected by the interest rates they charge you. Whether you opt for a fixed interest rate or choose a variable one that moves up and down with prime, you have to make sure you can pay this debt and be financially robust to withstand any nasty surprises or expenses you didn’t think about.

Too many people ignore those creeping expenses such as licensing fees, insurance, maintenance costs and that pesky chipped windscreen you got on your first road trip out of Sandton.

A great way to get an idea of what your instalments are likely to be, is to use the Absa Vehicle Finance Calculator. Although our calculator currently only goes up to 72 months ( since this is preferable to paying it off over a longer term, as we mentioned before), you can play around with it by varying the deposit amount, the repayment period and the interest rate. If you must, you can also add in a balloon to see how that would impact repayments.

We offer the best rewards and benefits with our vehicle finance options, allowing you to manage your finance online. We also allow you to pay in extra amounts at any time, in case you decide to settle the loan earlier, or want to lower your balloon payments or instalments. 

Always remember, do your sums twice, and make sure you are financially stable enough to withstand a few knocks. This is a big financial commitment – be prepared.