“This suggests that a significant portion of their income is being spent on the car alone and does not include other additional vehicle related expenses such as paying for insurance, fuel and maintenance,” added Jooste.

Jooste suggested these other considerations when buying a car.

Will paying a deposit help me?

The size of the downpayment plays a huge role in keeping the monthly instalment below the maximum budget one might be prepared to spend. Aim for 10% to 20% of the car’s price as a down payment to lower the size of the loan you’ll need and your interest rate.

How long should my loan term be?

An instalment car sale agreement can allow the buyer to repay the loan plus interest for up to 84 months, which is 7 years.

The buyer can also choose to take a balloon payment, which is a larger-than-usual one-time payment at the end of the loan term, to lower monthly repayments. This means the buyer can move the payment of the balloon amount to the end of the contract as the last repayment amount. Buyers who cannot afford to pay the balloon in full at the end of the loan term can respread and pay off this amount for a period between 12 and 36 months.

Should I fix my car interest rate or link it to prime?

Monthly car payments have changed a lot in the past four years as interest rates tend to move up and down based on the economic conditions.  

Fixed rates offer predictability and protection from rate increases but are usually higher. While prime-linked rates can be lower at the time of the agreement, they pose a risk of higher repayments if rates rise as economic conditions cannot be predicted, this can complicate budgeting.

What to do if I struggle with my monthly repayment?

Failure to pay the agreed instalments timely or not paying them in full can harm the buyer’s credit score.

If a buyer is struggling to make repayments or can’t make up for the missed payments in one go, they can reach out to the vehicle loan provider to seek assistance in finding appropriate alternatives or solutions to manage the credit repayments effectively. Banks and financial institutions offer debt relief solutions to assist clients who may default on their credit repayments or those who have defaulted.  These solutions include spreading the arrears over the remaining loan term, payment holidays, debt consolidation, or extending your loan term. These solutions may increase the loan-term over time however they bring relief on the monthly repayments.

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