You know exactly when you’ve found your car. It’s a feeling that’s difficult to define, but wow does it feel good. A car is, for most people, one of the most expensive purchases that can be made and usually needs to be financed. Not fully understanding the terms of the agreement can turn your car into a metaphorical liability instead of an asset. Here are the most important aspects to know before financing a car.

The ways to finance a vehicle in South Africa

      1. Restructuring your home loan

This is considered the best way to finance a vehicle because the interest on a home loan is lower than that on the majority of car loans.

      1. Car loan

If you don’t have a home loan, a car loan is your best bet. With this type of loan, the lender accepts the car as collateral, allowing for a relatively low interest rate. Once you have completed the monthly repayments, the car will be released, and you’ll own it officially.

      1. Personal loan

If you want to buy a car from a private seller, you’ll need to apply for a personal loan. These loans are unsecured, and the lender will generally charge higher interest rates. The upside is that you own the vehicle immediately and therefore it cannot be repossessed.

Essential terms to understand

Balloon/residual payment

A balloon payment is a lump sum amount that has to be paid at the end of the car’s finance term. The appeal is that a balloon deal offers lower interest rates, making you think you can drive a more expensive car that you would otherwise not be able to afford. If you cannot make the once-off payment, you’ll have to re-finance which is subject to more interest as well as fees. It’s vital that you review and are cognisant of the T’s and C’s before you sign the agreement.

Credit score

Your credit score is a measurement used by a lender (e.g. a bank) to determine whether you’re a high or low risk individual. You’ll be assigned a three-digit number ranging from 0 to 999 based on calculations of your transactional history, employment history and income. The higher your credit score, the better your chance of receiving the finance you need at a more favourable interest rate.

At, you can speak to one of our IFAs who will assess your personal financial situation and provide you with ways to save in the long term such as opting for the shortest possible repayment period or paying a larger deposit which reduces the original capital amount.

Original article from Car