Navigate Vehicle Financing

If you don’t have the cash in hand to buy a car then you will need to go down the vehicle finance route. You can get vehicle finance from your bank or from the dealership you are buying from. 

vehicle finance

With vehicle finance, you need to know what you can afford so you can avoid taking on too much debt. 


Here is our quick guide to vehicle finance. 


What Can You Afford?


When thinking about taking on a monthly commitment like a vehicle then you need to go over your budget. You can find vehicle financing calculators online that can help you to determine what you can afford each month. 


Don’t forget that it isn’t just the vehicle you will be paying for. You need to factor in other costs such as fuel and insurance etc. These must be included in your budget so you can have a realistic idea of what you afford. 


Putting Down a Deposit


Even though you may not have the money to buy a car outright, you may have some savings you can use to put towards a deposit. 


A deposit is a cash amount that you put down on the vehicle. A deposit will reduce your monthly premiums as the risk factor for the financial institution is reduced. You may also receive a lower interest rate when you put a deposit down. 


Linked and Fixed Interest Rates


There are two options when it comes to the interest rate, which is fixed and linked. The interest rate will be the amount that you need to pay on your loan. 


With a fixed interest rate there are no surprises as the interest rate will remain the same for the entirety of the agreement. You then know exactly what you will pay each month and can budget accordingly.


A linked interest rate, on the other hand, will fluctuate according to the prime lending rate. You will pay more when it increases and less when it decreases. Having a linked interest rate is riskier, but you will benefit when the rate decreases. Just make sure you have some extra cash ready for when the interest rate rises. 

vehicle finance


How Long Does it Take to Pay


The amount you pay each month will also be determined by the term of the agreement. The longer the term then the smaller your monthly instalments will be, but the more you will end up paying in interest. 


What About Balloon Payments


Balloon payments are used to make car payments more affordable. With a balloon payment, a percentage of the vehicle value is removed from the finance amount. This amount is then paid at the end of the finance period and will need to be paid as a lump sum. 


If you can’t afford to pay the balloon payment at the end of the term then you can opt to refinance it. 


Taking a balloon payment can reduce your monthly car payments, but it is seen as risky because at the end of the term, you may not be able to pay the amount back or you may have to pay for longer due to having to refinance the balloon payment. 


Getting the Best Deal


Now that you know what you can afford and have an idea of the terms you would like, it is time to shop. You should shop around to find the best deals. 


With the internet, this is easier than ever as you can browse hundreds of listings from various dealerships and individuals all from the comfort of your home or on the go with your smartphone. 


Keep in mind that you can get more car for your money when you go down the pre-owned route and there are plenty of reputable dealers that offer certified pre-owned vehicles giving you peace of mind. You will also have a lot more choice in the type of car you can get at a more affordable rate. 


Dealerships and banks can help you with vehicle finance, so compare your options and choose the best deal that suits your budget. 


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