Car Finance: Finding the Best Terms

Jan 2021

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Choosing a suitable used car for your needs requires research and a good understanding of what is available on the market. Similarly, it is important to understand the different applicable car finance plans so that you can choose the one that will perfectly suit your pocket.
With that in mind, let’s have a look at what car finance entails.
Car Finance Agreements
A car loan means borrowing money from a lender, which is normally a financial institution like a bank, that provides funds to pay for the car upfront. The car purchaser, or borrower, repays the debt in monthly instalments, including interest, according to the agreed terms.
Car Finance Structures
Three considerations determine the way a car finance agreement is structured.
1. Loan Amount
The first factor is the loan amount, which is the sum of money, i.e. the cost of the used car you want to buy, you borrow from the institution. You can reduce this principal amount by offering a trade-in vehicle or by making a down payment. A down payment is a lump sum paid at the beginning of the car finance agreement. The higher this payment, the lower the interest payments on the balance of the loan.
2. Annual Percentage Rate
The second factor involves the Annual Percentage Rate, otherwise known as APR. This is the interest rate charged on the loan amount, as well as the lender’s fees. Needless to say, the higher the interest rate, the more your total loan costs.
Currently, the interest rate is the lowest in over 20 years. In 2020, the key REPO rate was 6,25%. A car loan’s interest rate is linked to the REPO rate. As such, when the REPO rate goes down, so does the interest rate that you pay, by the same margin.
3. Loan term
The third factor is the loan term, which is the number of months that it will take you to repay the lender. Car finance agreements are usually structured around 36 to 72 months for repayments.
Saving money on car finance agreements
There are always ways to save money, you just need to know how to do it. It is especially true now during this turbulent economic time.
One of the key factors considered by your financial lender when making a car finance decision is your credit history. The better your credit score with banks and other institutions, the better the chance to have your car finance agreement approved at a lower rate. Work on your credit score continually by maintaining regular payments on all your financing agreements. Also, check your credit rating and dispute any discrepancies you may find. Never overextend yourself by applying for credit you can’t repay.
Then there’s always the option of borrowing less. We have already mentioned a down payment or trade-in. You can also consider buying a less expensive car model than the one you have in mind. Used cars are much cheaper than new ones and at Citton Cars, our used cars are as good as new!
Deciding to opt for a shorter repayment term will also result in a smaller interest charged than with a longer-term. You will, however, pay a higher monthly instalment, making it vital that you first assess if you can afford it.
Most car finance agreements are simple interest loans for which daily interest is calculated. You can save money in a few creative ways. You can consider paying your instalment before the monthly due date, adding money to your agreed instalment, pay a lump sum now and again, or make half the payment twice a month.
If you are not happy with your current car finance agreement, you can also decide to refinance the loan you have with your current lender.
Citton Cars has been in the car finance industry for more than 30 years. We will help you find an alternative lender and negotiate for lower monthly instalments. Our dealerships are approved by all major banks, including WesBank, Absa, ALPHERA Financial Services, Investec, MFC (a division of Nedbank), and Standard Bank. The car finance agreement will be between us and you, the buyer.
What if I have no credit history or am a first-time buyer?
At Citton Cars, we don’t penalise you for not having a credit history. We strongly believe that everyone deserves a chance – and a car! We will take your finances into consideration, and if you are a graduate, we won’t assess you according to the same criteria as everyone else.
Now that you know what car financing is all about, visit us for your next motoring pleasure and let us structure the best financing deal.