Your Checklist For Financing A Used Car
Looking for a used car to buy that suits your personality and your pocket? You may think that your choice of new ride will depend on your taste, but it will most likely depend on your budget and financing options. If you are in the market for a second-hand vehicle, work through our checklist before you start shopping for the car of your dreams.
Work Out Your Budget
Decide if you can pay for the car in cash, need to apply for vehicle finance, or take out a personal loan. A car loan will typically give you a lower interest rate but you will need to put down a deposit, whereas taking out a personal loan to buy a car, will give you the flexibility to spend money on other things too – like upgrading the sound system.
If you decide to finance the vehicle, you may think that you have more money to spend on a vehicle per month than you actually do. That’s because we often fail to factor maintenance, insurance and fuel costs into our budget. Then there are also unexpected costs like a yearly car licence and even traffic fines that you may not expect. Around half to two-thirds of your budget should be allocated to your vehicle’s instalment. Work out what you can spend in total after all your other monthly expenses and then settle on roughly two-thirds of that as a repayment amount.
Do You Have A Deposit?
Once you have a budget in place, consider if you have a deposit to make a downpayment on the car if you are financing the car. Usually, a deposit would be 10-20% of the purchase price. It might actually be wise to save up for the deposit first.
Factor In Interest On A Loan
Where a lot of people get caught out is they forget that they will be paying interest on the vehicle so you might be buying a car for R200,000 but you will be paying a lot more back with interest added.
Use a car finance calculator to see what the repayments will be over different terms. The longer you finance the car the lower the monthly payments will be but you will be paying more interest. Obviously, if you are taking a personal loan then you would need to consider the interest you will be paying back in addition to the cost of the car.
Will You Accept A Balloon Payment?
One way to bring down the monthly cost of financing a used car would be to accept a balloon payment. The advantage of this is that it enables you to buy a car that you wouldn’t be able to afford straight away, without requiring a deposit upfront. The downside is that you will still owe an amount on the car after the loan term is up.
Typically, a balloon payment would represent a percentage of the purchase price of the vehicle. For example, for a car costing R300,000, a 20% balloon payment would work out at R60,000. This would be paid in one lump sum at the end of the contract period.
Factoring a balloon payment into the finance agreement of your next car purchase may come with some appealing benefits, but make sure you understand how this works. You’re essentially paying off a loan for most of the car, but not all of it. The amount set aside at the onset remains the buyer’s responsibility and will need to be settled in the long run.
Check Your Credit Score
Before you actually apply for finance you should check your credit score as it will affect your odds of being approved for finance. If you want to check your credit score then you can sign up for ClearScore, as an example. You can then clearly see what areas are bringing your score down and perhaps even make a plan to pay back debt so that your score improves before you apply for finance.
Ready To Find That Car?
Been through the checklist and are ready to commit to finding the right car for you? If you are looking for assistance in finding the right vehicle and financing it, all Group1 dealerships have highly trained and experienced financial consultants that will assist with comparative financing options and advice. Pay them a visit or give them a call today.
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