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Questions to answer when financing a car

Insight into how to manage your car repayments to suit your finances

You’ve found a new car, and are considering all the financing avenues. Yes, you do have choices and you are in control, but there are variables to consider that can make monthly payments smaller or larger, and affect the duration to pay off a car. We’ve included some essential information to help you figure out what financing path to choose when purchasing a new car.

How much deposit do you need?

Traditionally you were asked to pay a minimum of 10% of the value of the car as a deposit. Paying a larger deposit shows your financial security, which is a good thing for the interest rate attached to your car loan. These days deposits are flexible, the larger the deposit, the smaller the monthly repayments and vice versa.

If you can afford a large deposit – do it! If you can’t that’s okay too, companies like RCS Car Finance will help you with a finance plan with, or without, the deposit.

What’s the interest rate and how much are your repayments?

The interest rate determines the amount that you’ll pay a financial institution for loaning you the money to purchase your car and this determines what your monthly repayments will be. The typical interest rate charged on car finance is around 14% but this can vary. We’d definitely recommend shopping around for the best rate.

Car finance providers have different ways of calculating the interest rate that they will offer you, including: your credit profile, the amount you’re buying for or whether you are a repeat or first time purchaser. RCS Car Finance will offer you an interest rate based on your credit profile, with rates starting from prime.

When taking out car finance there is the option of getting either a variable or fixed interest rate. A variable rate will fluctuate as the prime interest rate changes and fixed interest rate finance fixes the rate for the duration of your finance term. The latter is ‘safer’ if rates change often but could be higher if interest rates are on a downward trend.

How long will it take to pay off?

Repayment terms for car finance typically range from 48 – 72 months. The shorter the finance term the higher the monthly repayments. For smaller monthly payments you can finance your car over a longer timeframe but you’ll end up paying more on interest. It’s no good taking a shorter-term if it’s going to kill your financial goals, find a timeframe where you can comfortably afford the repayments, and still live your best life.

With RCS Car Finance your repayment term can be customised to your needs, up to a maximum of 72 months (6 years).

Here is an example of how this all works:

Example below based on a 2016 VW Polo Vivo which you purchase for R 170 000.

Depending on the interest rate you get and the term you choose, the tables below outline what your monthly instalments would be and how much you would pay in total.

4 years

Total loan amount: R 170 000

Term: 48 months [4 years]

Interest Rate Monthly Instalment Total Repayable
Prime 9.75% R 4 390 R 210 720
14% R 4 747 R 227 856
16% R 4 921 R 236 208

*T&Cs Apply. Based on: Zero deposit, no residual value. Includes monthly service fee and finance initiation fee.

5 years

Total loan amount: R 170 000

Term: 60 months [5 years]

Interest Rate Monthly Instalment Total Repayable
Prime 9.75% R 3 685 R 221 100
14% R 4 052 R 243 120
16% R 4 232 R 253 920

*T&Cs Apply. Based on: Zero deposit, no residual value. Includes monthly service fee and finance initiation fee.

6 years

Total loan amount: R 170 000

Term: 72 Months [6 years]

Interest Rate Monthly Instalment Total Repayable
Prime 9.75% R 3 219 R 231 768
14% R 3 596 R 258 912
16% R 3 782 R 272 304

*T&Cs Apply. Based on: Zero deposit, no residual value. Includes monthly service fee and finance initiation fee.

Smart tip: paying your monthly bills on time will positively affect your credit score and could help you get a better interest rate when financing your car.

Whatever financing terms you choose, they need to be the right ones for you.

Are you currently looking to buy a car? Do you want RCS to help you find, check and finance your car? 

RCS is a registered credit and authorized FSP. NCRCP38/FSP44481

Please note: Due to the COVID-19 lockdown it will not be possible for RCS Car Finance to assess and test a pre-loved car for you or deliver a vehicle. You will be able to start your RCS Car Finance application and see how much finance you could qualify for, and the rest of the safe, easy process will take place at a later date.

-END-

image: iStock

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