CRA Personal Finance – Buying a Car
The probability of you still earning an entry-level salary might be high, so purchasing a vehicle might not be a viable solution. But what about finance?
Need to purchase a vehicle? Be it a used or brand new ride, we understand, the thought can be overwhelming. (Especially when you’ve recently entered the workforce.) The probability of you still earning an entry-level salary might be high, so purchasing a vehicle might not be a viable solution. But what about finance? One major factor that can cause stress is wondering how you’re going to finance the vehicle, especially with no credit score. Now that’s where graduate finance comes in.
Lenders have a graduate finance programme that can help you buy a second-hand car in South Africa. Now, this does not mean that you should jump into a brand new vehicle when second-hand vehicles are just as functional. Now more than ever, there is a wide range of second-hand vehicles on the market, and fortunately, it’s become so easy to find a used vehicle in impeccable condition. Understanding the target audience for graduate finance If you’re wondering what graduates finance is, well graduate finance is a vehicle finance option for new working professionals who need a vehicle. Lenders understand that graduates might not have a credit score as they haven’t had the chance to build a report, which can affect them when in search of a vehicle. With graduate finance, you have the chance to qualify and purchase a vehicle without a credit history.
As with any large purchase, it is good to know what is expected of you, which is why we have written a vehicle finance guide for first-time buyers to get started on this process. Read down below on what you need to know when financing a pre-owned vehicle.
Always shop around first
When you have decided on a time to purchase a vehicle, you need to start shopping around. View different vehicles online, visit dealerships and see which cars you’re interested in, and which cars can potentially fit into your budget. Knowing how much a vehicle costs before going to a lender will help you get an idea of how much you need. Lenders also have vehicle finance calculators online that will give you an estimation of how much you will pay if you get pre-selected for financing.
Budget for the total running costs
The price you see when a car is for sale isn’t the only cost you need to budget for. You need to keep the following expenses in mind; maintenance, car insurance, petrol as well as any additional money for repairs. This will give you a realistic amount that you will need in a month to cover your vehicle expenses. To see if you are in the right financial position to purchase a vehicle, make sure that your vehicle expenses only cover a reasonable percentage of your income. That percentage is up to you and what you are comfortable with, but keep in mind that you still need to be able to pay from rent, groceries, utilities, savings and for entertainment. If you can pay for your car and still live comfortably, then you know that you are financially okay to take out a vehicle loan. Be honest with yourself when budgeting as financial service providers will also take a look at your budget to see if you will be able to afford a car loan.
Fully understand balloon payments
When you apply for a car loan, you’ll realise how expensive it is, and that it is a long-term commitment. And although you are buying a second-hand vehicle, it will still be a large amount of your salary going towards it. This can make taking a balloon payment seem like the best alternative, but before taking it, you need to fully understand what it means for you in the long run. A balloon payment allows you to pay less on your vehicle now, but you are still required to pay off a large amount once your loan term comes to an end. This means that you will either have to refinance, trade-in your vehicle or settle it to pay the remaining balance. Although you pay less now, you pay more in the future. This is not to say balloon payments are bad and that you need to steer away from them, it simply means that you need to be aware of what it entails, and have a plan on how you wish to pay for the remainder of your balance.
Save up for a deposit
It can be tempting to ride off with a vehicle without paying a deposit, but it is beneficial for you to try and save up at least 10 to 20 percent of the overall cost. This is something lenders also encourage as it lowers your debt amount, and can help you tackle your interest. When applying for graduate vehicle financing, lenders will look at the fact that you saved up for a down payment as a positive sign, and may lower your interest rate. Seeing as you are starting out in your career, you might have a low credit score as you have never had debt. Lenders understand that as you’ve just started working you may not have a credit score but are willing to finance your vehicle to be your first credit provider.
Keep your repayment term as short as you can
Payment terms can go up to 96 months. This can help alleviate the financial burden as you’ll pay a lower monthly instalment, especially if you bought an affordable used car. But, as much as it allows you to stretch your Rand, always remember that you will pay a higher interest rate in the long run. Therefore, look at your budget and try to find a way to make your repayments period shorter so that you can reduce the cost of interest and pay it faster. Be wary when negotiating and keep the goal of paying off the vehicle as fast as you can in mind.
Final thoughts
Lenders have made it easier for you to be able to purchase a vehicle with graduate finance. But, it is still your responsibility to use this financing option to help you, and not burden yourself with a repayment that isn’t within your means. This means to look for the most affordable vehicle to buy. Don’t be hasty in your search after being pre-selected for financing; you might miss out on a vehicle that is more in line with your budget. And, try as best as you can to save up for the vehicle that you are buying. This is the start of your career, and making smart financial decisions now will benefit you in the long run, and help you build a good credit score.
Article Credit To South Coast Sun.
