Part 1: SA Car Financing Language Explained
If you’ve recently been shopping around for car financing, chances are you’ve come across a bunch of terms you’ve never heard before – or might have heard, but in a completely different context. Confusing, right? It’s like those financing folks are trying to make it complicated on purpose. Fortunately, our team has the inside track when it comes to pre-owned vehicle finance in South Africa, so we thought we’d give you the rundown on the most obvious terms you need to know before making your way to the dealership. Here goes!
Installment Financing
This is the most commonly available type of car financing in South Africa. It is based on the repayment of a loan over a period that ranges from one to six years. The quicker you repay your loan, i.e. the shorter your loan period, the lower the interest will be that you ultimately pay on the amount of money you borrowed. However, if your repayment period is longer, you will enjoy the benefit of lower monthly repayments. Depending on how you manage your finances, it makes sense to make bigger repayments over a shorter, since there are many factors that could impact your ability to pay down the line.
Prime Rate
Often simply called ‘prime’ in colloquial terms, the prime lending rate in our country is determined by the South African Reserve Bank. At the moment, prime is set at 10%, but this rate is subject to fluctuation. The financing institution that lends you the money to purchase a car considers your credit score and income to determine at which rate to provide you with the loan. The riskier your lending profile, the higher the rate at which the money will be lent to you. Prime = 10%; prime + 1 = 11%; prime + 2 = 12%, etc. The best way to ensure that you get a good rate on your repayment agreement is to put down a sizeable deposit and to ensure that your credit record reflects your ability to pay timeously and consistently.
Title Holder VS Owner
When you get a loan to buy a new or preowned vehicle, you will notice that you are registered as the ‘owner’ of the vehicle, while the bank or financial institution that provided the loan is noted as the ‘title holder’. For all intents and purposes, the finance house ‘owns’ your car until you make the final repayment on your loan due to this language. They also retain the registration document. Once you have repaid your loan, it is your own responsibility to have the registration certificate released by the finance house, and request a document that states that the car has been paid off in full. These documents then need to be taken to your local traffic authority to have the registration updated. This ensures that you will be able to sell the car legally later down the line.
These are just a few of the most commonly-used car financing terms you’ll come across while shopping around for used cars in South Africa. We will be back soon with further posts in this series. In the meantime, keep an eye on the blog in coming weeks and months for more insider advice on purchasing pre-owned vehicles in Cape Town, Johannesburg, Durban, Bloemfontein and further afield. The more you know, the better you’ll become at spotting the best deals on SA’s used cars, bakkies, sports utility vehicles and more.
