We recently launched our VEHICLE FINANCE product page to help people all over South Africa make a better vehicle finance decision! In the next few weeks, we're going to give you the full low-down on all things vehicle finance, so stay tuned for more after this article.
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What are the typical finance options?
Personal Loan used for vehicle purchase
You will borrow money as you usually do with a personal loan and then pay back specific amounts over a fixed term. This enables you to buy the car "cash" but it sometimes results in higher interest rates due to the unsecured nature of the loan.
Vehicle instalment agreement or personal contract purchase
In this case, you usually pay a deposit amount (not required) and finance the remaining cost of the vehicle. This results in a monthly vehicle instalment amount calculated using the capital amount, interest rate, repayment period and potential residual amount (balloon payment). The car you are financing will belong to the financier up until the end of repayment or contract period. Once all the debts are settled, you will become the new owner of the car. Vehicles older than 10 years cannot be financed.
Hire purchase or rent to own
In this agreement, you will pay an agreed minimum deposit or percentage of the car's value. This will be followed by fixed monthly finance instalments (or rent) which effectively results in hiring the vehicle until the final amount has been paid. There is no interest applicable and these companies usually only cover lower end vehicles due to the risky nature of the business. You can also get your car sooner by requesting a settlement amount.
A guarantor loan is a form of vehicle finance suited for people who have a poor credit history or score. A friend, family member or another third-party member agrees to stand as the guarantor that you will be making the monthly payments. If you should fail to do so, they are then forced to take financial responsibility for the outstanding loan amount.
A vehicle leasing agreement is not a vehicle finance solution but rather a leasing agreement similar to leasing a home. You will need to make an initial rental payment as a deposit and ongoing rental payments. This ensures access to a vehicle but not to a car you can own. This agreement is more suited for someone who either needs a vehicle for a short time period or someone who does not want to take on the responsibility of a loan on their name. It's a simple solution with few risks and no rewards apart from access to a car.
How the vehicle finance process typically works
- You will need to fill out an online application of a financier
- The online application will have to go through a pre-approval process
- A seller will then need to agree to a sale of a vehicle based on your online application and do the necessary technical inspections of the vehicle
- You will provide the necessary documents
- You will then enter into a buyer and seller agreement where you sign a sales agreement or contract
- The financier will complete any remaining steps with you and will pay the seller the amount
- You will then need to do the necessary vehicle licensing and registration (if a dealer does not do it for you)
- You now pay back the financier according to the financing agreement
- Application for certification of roadworthiness
- Application for licensing of motor vehicle
- Application for registration and licensing of motor vehicle
- Application for licence number of motor vehicle
- Application for the notification of change of owner or sale of a motor vehicle
Personal documents you will need:
- Green barcoded ID
- Valid driver's licence
- Proof of income
- Proof of address
- Vehicle roadworthy certificate (once you sign the contract)
According to Wesbank, "A NaTIS document is a vehicle registration certificate or log-book, which is produced when a vehicle is registered with the licensing authorities. (NaTIS stands for National Traffic Information System.) All vehicles have to be registered with the licencing authorities. About 20 years ago, a vehicle
s registration document (or, in some provinces, log-book) was simply handed to the vehicle owner or purchaser when the vehicle was registered - it didnt matter whether the vehicle was being financed or not. Due to an increase in criminal activities like fraud, however, South Africa decided to create a new licensing system and to implement it in stages throughout the country. Gauteng went onto the new system in 1996. Now, if a vehicle is financed, the registration document is handed to the financial institution providing the finance. In the new system, the registration document reflects not only the vehicle owner's name, it includes the name of the finance house or bank that is financing the vehicle and refers to this institution as the vehicle
s titleholder. The NaTIS or registration document remains in the titleholders safekeeping while the vehicle is being financed. Without the document, no further change of ownership would be possible."**
Next week, we'll delve whether you really need vehicle insurance and give you some tips for better vehicle finance applications! Get started with vehicle finance by clicking here.