Everyone can now own a car, thanks to car loan options that make it easier for people to have a car without paying the money all at once. In this article, you find a guide on how to buy a car and pay in instalments in South Africa.
Key Terms In Auto Loan In South Africa
Car loan amount
The car loan amount or principal is the amount of money (i.e credit) given to you by the lender. This amount usually covers the overall cost of the car after the down payment has been deducted.
Interest rate
In South Africa, two interest rate options are usually available. It’s best to choose the one that suits you best. There are;
- The fixed interest rate remains the same throughout the entire duration of the loan repayment term.
- Linked Interest rate, is also called a variable interest rate. This is linked to the national prime rate which is unstable. It can move up and down as the prime rate goes up or down.
Loan deposit/down payment
Usually, before a car loan is given to you, you will be required to pay a percentage (often between 15-30%) of the total cost of the car.
Loan term/ period
This is the time duration required of you to pay the loan together with the Interest. The loan term can span for months or even years. Bear in mind that a shorter loan term means a more expensive monthly payment while a longer loan term implies a small monthly payment. However, you pay much more than the actual loan when the loan term is too long.
Monthly instalments
A monthly instalment is the amount of money you pay monthly to clear the loan.
Balloon payment
This is a part of the loan you need to repay in one big payment at the end of the loan. Not all car loans have a balloon payment, so you can choose the option that works for you. For instance, if a car costs R500,000, a balloon payment of R80,000 might be placed on it. This means a loan of R420,000 will be given to you on which interest will be charged. However, at the end of the monthly instalment, you need to pay R80,000 at once, otherwise, the car may be withdrawn from you.
Where Can I Get Auto Finance In South Africa
The following financial institutions offer auto finance in South Africa. You can apply for your auto loan in any of these banks;
- Absa Vehicle Finance
- FNB Vehicle Finance
- MFC Vehicle Finance
- Nedbank Vehicle Finance
- Standard Bank Vehicle Finance
- Wesbank Vehicle Finance
Qualifications Criteria To Obtain Auto Loan In South Africa
- be 18 years old or older.
- be a permanently employed salaried individual, earning a minimum salary of R6500 pm.
- have a valid South African driver’s licence with no endorsements.
- be a South African citizen or permanent resident; and.
- have a good credit history.
How To Get Auto Loan In South Africa
- Know the type of car you want to buy and know the cost.
- Research on institutions offering auto loans in South Africa. Compare their interest rate and general service, then decide on the best one to go.
- Make a move to the auto loan institution you have decided on and fill in the auto loan application.
- Make sure you have all the necessary documents and meet the eligibility criteria.
- Have a stable source of income that you can rely on to pay the monthly instalments.
- Read carefully all the details written in the loan agreement form. Beware of shady agreements, ask questions where necessary.
- If all works well, sign the document and your auto loan is ready.
How To Calculate Your Monthly Instalment
If you are buying a brand new 2016 Toyota Corolla which costs about R 800,000. if the down payment is 20%, then you are paying R 160,000 upfront. This means you are left with R640,000 to complete the payment. The remaining R 640,000 has to be paid in four years at a fixed interest rate of 5% per annum. A balloon payment of R100,000 is charged on the car.
From the above example:
Balloon payment= R100,000
Loan amount= R 640,000
Interest rate = 5%
Loan amount on which interest is charged= Loan amount – balloon payment
= R 540,000
Loan term= 4 years
FORMULAS
Your total interest = interest rate/100 x loan amount x loan term
Your monthly interest = total interest / (loan term x 12)
Your monthly installment = (loan amount + total interest) / (loan term x 12)
Loan term= 4 years
Interest rate= 5%
Loan amount on which Interest is charged= R 540,000
Total interest for 4 years= 5/100 X R 540,000 X 4 = R108,000
Your monthly interest = R 108,000/ (4 X 12) = R2250
Your monthly installment = (R540,000 + R108,000) / (4 X 12) = R 13,500
This means you have to pay R13,500 every month for a period of 4years to get out of this loan credit. Then, you can boldly call that car yours. At the end of four years of monthly instalment payment, you will then need to pay the balloon payment at once.
You can apply this formula in paying for any car you desire to buy in monthly instalments.
PS: For most auto finance institutions, service charge fees are usually included this will slightly increase your monthly instalment payment.
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