Figuring out the best way to finance a new or pre-owned car


Choose between paying cash / using savings, vehicle finance, or a personal loan

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There’s nothing better than the freedom and independence that comes with owning your own car, but it can be tricky figuring out how to finance that new set of wheels, especially for first time buyers. There are a variety of finance options available today – you will just need to decide which one is best suited to your unique financial goals and lifestyle.

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Paying cash

For those who can afford it, paying cash to drive away with a car that’s completely yours would seem like the simplest and most attractive option. And while this allows you to avoid having to pay car instalments every month, there are other factors to consider too. 

For instance, if you are only just beginning your ‘adulting’ journey, you’ll probably want to establish a good credit history and build up your credit score to better your chances of securing a credit card or home loan in the future. To do this, it’s a good idea to consider taking a loan or financing and paying it off timeously.

That being said, if you do have enough savings, you can also pay a lump sum in addition to your monthly instalments and save a great deal in interest repayments that are attracted by financing a car or taking a loan.

Vehicle finance

“Not everyone can afford to buy a car cash, which is why many South Africans choose to finance their vehicle through a dealership, bank or directly from a finance house,”

says Douw Leadley at MFC, a division of Nedbank.

“Vehicle financing also allows you to purchase a vehicle with or without a deposit, making it an ideal option for young people who may not have a lot of money saved up yet.”

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With this option, you make monthly payments (with interest) towards your car loan, bringing you closer to taking full ownership of your vehicle. This can be achieved by paying instalments each month for up to 96 months (for new vehicles) or 90 months (for vehicles that are between 1-3 years old) or a balloon payment (also called a residual), which offers the benefit of reduced monthly repayments for a lump sum repayment at the end of the repayment period.

Working with a vehicle financing house also means that you have help with the verification and re-registration of the vehicle, ensuring that the required technical inspections have been reputably done, and that roadworthiness has been certified.

You will need to have a comprehensive vehicle insurance plan in place that covers the outstanding loan balance on the vehicle for your application to be approved. While this does add to your monthly costs, it also protects you in the event of an accident or theft.

Personal loan

You could apply for a personal loan, which allows you to take full ownership of the vehicle from the start as the lender provides you with a lump sum in your bank account to pay for a vehicle outright. However, bear in mind that personal loans are unsecured, making interest rates much higher due to the risk the lender assumes, unlike car loans which are secured and allow institutions to offer you the benefit of much lower interest rates. 

Consider your vehicle financing options carefully before making your choice. And, if you’ve got your eye on a pre-loved vehicle on Gumtree, look out for an MFC Private Finance checked vehicle, which gives you the assurance the car has been police and accident cleared, and approved for finance.

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