Finance question

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PokerManiac

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Hi,

I have a question about financing a car.

Let's say you buy a Car and you finance R100.000 and the instalment is R2000 and after 3 months you have R30.000 on the side from selling something and you want to pay the R30.000 into the loan. Can you lower the instalment that way? Will the loan be R70.000 after paying the R30.000

I don't how to put it differently. Sorry for my English
 
it might depend on the nature of your loan agreement, but yes you should be able to deposit additional funds into the loan and reduce your monthly instalment
 
Depends on the finance agreement but this is often possible. Find out about any penalties that may be triggered by doing this before you sign anything. Some agreements can sometimes nail you for early settlement.
 
Definitely worth doing it - you'll save a fair amount on interest. Once you deposit the money, you should have the option to either lower the term or lower your monthly installment once you deposit.

As the others mentioned, watch out for any fees attached to ad hoc deposits.
 
No problem at all - it used to be of no use, before the NCA was passed, now you can dump any large amount in, and it changes your payment.
Just to make sure, visit the person or bank where you took out the loan and tell them what you are going to do.

Just to clear up what happens ~ if you owe 100k over 5 years, repayment is calculated on that - now you drop in 30k, and payments are recalculated over the same period, so your instalment would be the equivalent of 70k over 5 years.
 
Which part of the NCA are you pointing to? Our servant's husband would like to do the exact same thing (albeit lower amounts) and the bank said NO.
 
intel8080 said:
Which part of the NCA are you pointing to? Our servant's husband would like to do the exact same thing (albeit lower amounts) and the bank said NO.
Click to expand...

If it's a direct loan with the bank it might be different, though I don't see how. If he has financed a car through any one of the banks, he is allowed to do it.

I would like to hear the full story from the bank
 
intel8080 said:
Which part of the NCA are you pointing to? Our servant's husband would like to do the exact same thing (albeit lower amounts) and the bank said NO.
Click to expand...

Then the bank is acting illegally.
No credit provider may refuse to take extra payments although they may still charge penalties on house bonds if you don't give them notice, three months prior to termination.


National Credit Act, 2005 (Act No. 34 of 2005)
Chapter 6 : Collection, Repayment, Surrender and Debt Enforcement
Part A : Collection and repayment practices
126. Early payments and crediting of payments

1) At any time, without notice or penalty, a consumer may prepay any amount owed to a credit provider under a credit agreement.
2) A credit provider must accept any payment under a credit agreement when it is tendered, even if that is before the date on which the payment is due.
3) A credit provider must credit each payment made under a credit agreement to the consumer as of the date of receipt of the payment, as follows:
a) Firstly, to satisfy any due or unpaid interest charges;
b) secondly, to satisfy any due or unpaid fees or charges; and
c) thirdly, to reduce the amount of the principal debt.

http://www.acts.co.za/nat_credit_act/nc_act_126_early_payments_and_crediting_of_payments.htm
 
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Depends on the bank how easy it is. Wesbank was always simple. No need to contact them, just pay in the extra. ABSA/Bankfin on the other hand required paperwork.

Fazda said:
No problem at all - it used to be of no use, before the NCA was passed, now you can dump any large amount in, and it changes your payment.
Just to make sure, visit the person or bank where you took out the loan and tell them what you are going to do.
Click to expand...
It's been of use ever since banks dropped hire purchase, which was long before the NCA was even proposed.

Paul_S said:
Then the bank is acting illegally.
No credit provider may refuse to take extra payments although they may still charge penalties on house bonds if you don't give them notice, three months prior to termination.
Click to expand...
That's why you don't terminate, but just pay in almost the entire amount owed.
 
noxibox said:
Depends on the bank how easy it is. Wesbank was always simple. No need to contact them, just pay in the extra. ABSA/Bankfin on the other hand required paperwork.


It's been of use ever since banks dropped hire purchase, which was long before the NCA was even proposed.


That's why you don't terminate, but just pay in almost the entire amount owed.
Click to expand...

Not sure what you mean by the banks dropping Hire Purchase - it's the same as an installment contract - semantics.
 
Fazda said:
Not sure what you mean by the banks dropping Hire Purchase - it's the same as an installment contract - semantics.
Click to expand...

There is a difference between HP and Loans, Never take an HP if there is a chance you want to pay early. This is how I remember them working, but the last time I studied finance was a while back, so I am attaching a slight disclaimer to this :)

Hire Purchase and Loans work very differently. Loans the interest owed is calculated periodically (daily, week, monthly) and affects monthly payments.

Hire Purchase, the interest is usually calculated upfront and added to the amount. Then broken down over the period. Therefore if you pay sooner, you still don't save on interest as its been added for the period.

Not sure what an Installment Contract is.
 
Isn't hire purchase when they give you a lowish installment with a large residual, where the guaranteed buyback by the dealer after the contract period, covers the residual? There is normally a limit on the km's you can travel during the contract period... I always thought this was hire purchase.
 
This was actually something that I had asked my finance house when buying a car +-2 years ago.

The way it was explained to me is that you are allowed to at any stage make additional payments to reduce your debt, on a plain and simple loan agreement (I.e. after x months the asset is yours, no residual/balloon payments).

At MFC (again, from what I understand) any additional funds that are deposited basically reduce the total outstanding balance, which in turn reduces interest and automatically your loan term. E.g. if I have R12000 outstanding and usually pay R1000 per month, with 12 months left on the loan agreement. If I was to deposit R6000 in one month, I may now only have 6 months left on the loan.

If you chat with them though, 9 times out of 10 the finance house would be willing to refinance your outstanding balance to reduce installment. The snag though is, if you have R6000 outstanding (like in my example above) and you refinance that over a new loan term, you are going to be paying interest for each of those months. Best thing to do would be to actually chat with someone that can explain the pro's and con's specific to your situation (outstanding balance, term left, current and new interest rates etc.) and work out the best solution.

Just rough examples and working on what I remember - so can be very off. Consider this my disclaimer. :D
 
I did this with Wesbank and they offer you the option if you want to reduce your repayment amount over the same period or shorten the repayment period. From what I heard they cannot penalise you if they finance amount is less than R250k.
 
I made a couple payments into my MFC account a few months ago and I received an email last week stating my repayment has been reduced according to my loan agreement.

Would have preferred if they reduced the term instead but at least they are being proactive.
 
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