That new car smell can be an alluring prospect for many in the market for a new vehicle. But what does vehicle finance entail? We take you through some important information surrounding buying a new car on finance.
What you need to know
Applying for finance
Assuming that you have found the shiny new car of your dreams and have conducted a test drive in a demonstration unit and are presumably smitten, your next move is to apply for finance. This is a relatively simple process where you will supply three months’ worth of bank statements and indeed, your three most recent payslips. The application form will also require you to itemize your current monthly costs to determine whether you will be able to afford the vehicle in question.
The particulars
When applying for the instalment deal, you will have to decide the period for which you would like to pay off the vehicle, which ranges from 12 to 72 months. You will also have to decide how big a deposit you would like to put down on said vehicle, or if you would like to put down a deposit at all. All these factors may play a role in the interest rate that you get from the bank. There will also be an option to take a residual or balloon payment, which is a percentage taken from the initial purchase price and loaded to a lump sum owed at the end of the contract.
Also, be sure to ask for a quote before signing an offer to purchase (OTP) as the quote will include any costs that may have been unknown to you such as so-called ‘on the road’ charges or dealership charges as well as any optional extras that may be fitted to the specific vehicle you are looking at purchasing. Knowing these additional costs will prevent you from any nasty surprises further into the finance deal.
Look at the rate
The prime lending rate, at the time of writing, was 7.0%, so bear that in mind when looking at what the financial institution offers you. A dealership will often submit your application to multiple institutions to get the best rate possible. Always be sure to go through the particulars of the deal with the dealership’s F&I manager as they deal with these situations on a daily basis.
Checking your credit score before applying for finance will also give a good indication of how close your interest rate will be to prime. The better you score, the better your interest rate is likely to be. Since we are dealing with the purchase of a new vehicle, the rates will not be affected by the vehicle itself, however, the older and higher mileage vehicles tend to be approved with a higher interest rate as pre-owned vehicles present a higher risk.
