Vehicle finance

[martin]

Hi guys, I need some info on vehicle financing. Which are the best banks to finance with? What are the different type of financing? How do I negotiate the best interest rate? etc..

Can anyone give me some advice or point me to some good articles. I've bought two vehicles using financing and still know surprisingly little about how to get the best deal. Any help is appreciated!

[podo]

The best way is not to use vehicle financing, because you are paying very high interest rates. Of course, the best solution depends on the cost of the vehicle you plan to acquire.

My dad believes firmly that anything over R25 000 is just too much to pay for any car. Sure, there are the arguments that to keep an old car on the road costs money and that older cars are generally heavy on fuel, but my dad will argue in return that it is much less expensive to refuel your old car and perform the odd repair here and there than to pay off a R200 000 car.

Following from this philosophy, my folks drive old Mercedes Benz cars. They own two, one is a 1979 280E, the other is a 1974 280SE. Both are fantastic cars and very luxurious. They are easy to drive and not that much heavier on fuel than a modern luxury sedan car.

The two cars cost him R22 000 and R17 500 respectively. Previously, they had owned a 1992 VW Jetta II that they had payed off via vehicle financing. My dad was not at all happy with the deal he got. They payed off the Jetta, which was second hand by the time they bought it in 1998 and had more than 200 000km on the clock, at R400 per month.

Many financiers will charge interest of up to 16% or more, on a five year pay off period. At 20%, just 4% more, you will have payed for the car twice after the five year period.

So, instead of buying these two cars by financing, my dad came up with quite a bright idea, a friend of his who's an economist at the local varsity's department of business science got him on to it.

Here it goes. My folks have been making down payments on their house for quite a while. They have also been increasing payments incrementally with time, so that they are effectively overpaying on their home loan, which allows you to beat compound interest. For this reason, the outstanding amount on the home loan is MUCH lower than the actual value of the house.

The interest on home loans is generally quite low, around 11% or so. If you are slightly overpaying, you are also beating compounded interest, so you are getting a very good deal on your down payment, even though it takes slightly longer.

My dad's plan was very simple. The current market value on their house is R550 000. The outstanding amount on the home loan was R90 000. When he decided to buy the first of those two cars, he contacted the bank to "re-register" the home loan.

A valuer came to confirm that the house was worth more than the amount my dad wanted to register for and the bank agreed to do it. He decided to give himself some space, so he "re-registered" for R160 000. Effectively, he has now borrowed R70 000 for an indefinite period at 11% interest.

He has since used part of the remaining R50 000 to buy the 280SE and a 1981 Ford Granada for my sister.

Effectively, he is paying off all three cars at a total of about R350 per month. Even if he were to buy these old vehicles through financing, he would probably have to pay the same amount for both Mercedes and close to that for the Ford, individually.

So, if you aren't planning on buying a very expensive car and happen to have a home loan with an outstanding amount that's quite a bit lower than the value of your house, this is how you should be buying your car. [:D]

Willie Viljoen
Web Developer

Adaptive Web Development

[martin]

Thanks for the advice podo, but I don't have a home loan, and I desperately need a car with decent fuel economy as I travel quite a lot. My current car is falling apart from all the travelling and maintenance and fuel costs are costing me quite a bit each month.

[podo]

That's understandable. In such a case, you'll have to go for financing. As far as that goes, it's really hard to tell who you should ask. Many people rave about Wesbank, which is FNB vehicle finance, but my dad has had a bad experience with them in the past so he's been staying away ever since.

I'm with FNB for normal banking and can definitely recommend them for that, I'm not so sure about Wesbank though, all though they do seem to be getting good reviews.

Supposedly, ABSA offer slightly lower interest rates, but I haven't seen that.

The best way to negotiate for better rates is to contact every bank and financier you can find. Get an official quote from each, detailing the interest you will be paying, capping on interest where applicable, etc. Then, go to the bank where you have encountered the best service and the friendliest staff and give that bank the cheapest quote from the other banks.

In this way, you should be able to get a reasonable rate without needing to go to a bank that will bleed you dry with hidden costs and terrible service.

Willie Viljoen
Web Developer

Adaptive Web Development

[martin]

Just found this: http://www.buyingacar.co.za/
Pretty extensive.

[podo]

Nice [:D]

Willie Viljoen
Web Developer

Adaptive Web Development