Vehicle Finance and residual

[Sparky_za]

Hi Guys

I have just completed a new application for vehicle finance and while chatting to the consultant he mentioned to me that if you take a residual % of the vehicle amount, this is not actually considered when approving or declining your finance. Approval is based on the full vehicle amount. That doesn't really make any sense to me, so could someone shed some light on that?

And before I get hammered for residual, no I did not take any residual on my application, I just find it strange that it's not considered.

[phiber]

Probably has something to do with them having to take the assets value, as the asset is what stands as collateral for the loan. Probably also prevents people buying cars they can't afford by taking super large residuals.

[HapticSimian]

The residual amount (or balloon payment, more accurately) still forms part of your debt to the bank... it won't disappear if you suddenly can't meet your obligations, so it necessarily still factors into the equation.

[Raiders]

I dislike working with residual amounts. It makes repayments less but come the end of the term you have to pay the residual amount. This makes expensive cars affordable now but would result in less money at the end of the term to buy a new car. In some cases the trade in value does not even cover the residual amount.

All the ads on the tv claiming "Only R### p/m" have huge residual amounts.

[Dolby]

They look at monthly repayments and not really how you get to it.

[krono9]

Look at residual as your final installment. So it makes no difference on you principle debt. It just reduces your monthly installments a little, kind of like adding that reduction to your final installment. Dont go more than R15 000 i say...

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