Myt­hs and facts a­bout car fi­nan­cing

George Herald - Auto Dealer - - News -

Un­less you’re fa­mi­li­ar with the ins and outs of car fi­nan­ce, it’s hard to tell w­het­her you’re de­a­ling with an old wi­ves’ ta­le or a fact, w­hen get­ting ad­vi­ce from friends and fa­mi­ly.

The­re are lots of myt­hs doing the rounds, but Ru­dolph Ma­ho­ney, he­ad of brand and com­mu­ni­ca­ti­ons at Wesbank, hel­ped to sort the w­he­at from the chaff.

Myth: C­hecking your cre­dit sco­re will af­fect your cre­dit ra­ting

T­his is de­fi­ni­te­ly not true. In South A­fri­ca, the Na­ti­o­nal Cre­dit Act 34 of 2005 sta­tes that you’re le­gal­ly en­tit­led to re­quest a free cre­dit re­port an­nu­al­ly. It’s re­com­men­ded that you ta­ke ad­van­ta­ge of t­his. Re­quest your an­nu­al cre­dit re­port - re­gard­less of w­het­her or not you’re a­bout to ma­ke a big pur­cha­se, just to keep your fin­ger on the pul­se of your cre­dit sco­re.

Myth: S­hop­ping a­round for the be­st in­te­rest ra­te will hurt your cre­dit sco­re

T­his sta­te­ment is a litt­le tric­ky. The ans­wer is both yes and no. It’s ac­tu­al­ly worthw­hi­le to ap­ply for cre­dit p­ri­or to s­hop­ping for a car. T­his way you’ll know w­hat bud­get you ha­ve a­vai­la­ble. You may al­so want to ap­ply through two cre­dit pro­vi­ders si­mul­ta­ne­ous­ly to se­cu­re the be­st pos­si­ble in­te­rest ra­te.

The pro­blem co­mes in w­hen you ap­ply at too ma­ny dif­fe­rent cre­dit pro­vi­ders o­ver a pro­lon­ged pe­ri­od, for ex­am­ple ap­plying at six or se­ven cre­dit pro­vi­ders within a month. Trying to hag­gle for a bet­ter ra­te and re­pe­a­ted­ly ap­plying for cre­dit could sig­nal a red flag to cre­dit bu­reaus. It could in­di­ca­te you’re hun­gry for cre­dit. T­his is coun­ter­pro­ducti­ve, as you’ll ac­tu­al­ly end up with a hig­her in­te­rest ra­te than you would ha­ve re­cei­ved had you on­ly ap­p­lied at one or two cre­dit pro­vi­ders.

Myth: You ha­ve to pay a de­po­sit

T­his one’s a myth. It’s highly re­com­men­ded that you put do­wn the big­ge­st de­po­sit you can af­ford. Ho­we­ver, you don’t need to put do­wn a de­po­sit to ap­ply for car fi­nan­ce.

Myth: You shouldn’t choo­se a bal­loon pay­ment

Men­ti­o­ning the phra­se bal­loon pay­ment is of­ten met with the sa­me re­acti­on as saying “Vol­de­mort” at Hogwarts.

But is the stig­ma at­ta­ched to bal­loon pay­ments re­al­ly jus­ti­fied? Ac­cor­ding to Ma­ho­ney, the ans­wer is no. Op­ting for a bal­loon pay­ment can help you buy your dre­am car if it’s not qui­te within your bud­get. T­his may be es­pe­ci­al­ly help­ful for so­meo­ne look­ing to pur­cha­se their first car, w­he­re they don’t ha­ve an ex­is­ting vehi­cle to tra­de in as a de­po­sit.

But a bal­loon pay­ment can be li­ke a “clingy ex” if not pre­pa­red for pro­per­ly. Wesbank sug­ge­sts you a­void nas­ty shocks w­hen it co­mes to bal­loon pay­ments by being well in­for­med on w­hat it me­ans.

Myth: You can’t get car fi­nan­ce with a bad cre­dit re­cord

T­his is true. The Na­ti­o­nal Cre­dit Act 34 of 2005 pre­vents fi­nan­ci­al in­sti­tu­ti­ons from gi­ving cre­dit to in­di­vi­du­als who are con­si­de­red to be fi­nan­ci­al­ly o­ver-in­deb­ted. Any re­gis­te­red fi­nan­ci­al in­sti­tu­ti­on that ap­pro­ves a lo­an to so­meo­ne who’s o­ver­in­deb­ted, may be char­ged with reckless len­ding and could fa­ce mil­li­ons of rand in fi­nes.

Ho­we­ver, you can re­co­ver from a bad cre­dit his­to­ry. So just be­cau­se your cre­dit re­cord isn’t look­ing good rig­ht now, it doe­sn’t me­an that you can ne­ver ap­ply for fi­nan­ce in your li­fe­ti­me. A­gain the so­lu­ti­on is in­for­ma­ti­on, which can be found on­li­ne through WesBank.

Al­ter­na­ti­ve­ly, you could con­si­der an al­ter­na­te met­hod of buying a car - li­ke a rent to own op­ti­on.

Myth: You can on­ly fi­nan­ce a new car

T­his is de­fi­ni­te­ly a myth. You can ap­ply for car fi­nan­ce for any vehi­cle less than ten y­e­ars old.

Myth: You can fix your in­te­rest ra­te at any ti­me

The­re are two in­te­rest ra­te op­ti­ons w­hen ap­plying for car fi­nan­ce. The first is a fixed ra­te which will re­main the sa­me for the du­ra­ti­on of your lo­an term. The se­cond is a lin­ked ra­te which fluc­tu­a­tes with chan­ges to the pri­me len­ding ra­te.

Fix­ing your in­te­rest ra­te is a good i­dea if you fo­re­see in­te­rest ra­te hi­kes in the fu­tu­re and are con­cer­ned that t­he­se could mess up your bud­get. The trou­ble with a fixed ra­te is that if the pri­me len­ding ra­te de­cre­a­ses, you can’t switch to a lin­ked ra­te. The terms of your lo­an need to be de­ci­ded up front - so choo­se wi­se­ly.

“E­very cre­di­ble de­a­lers­hip has a fi­nan­ce and in­su­ran­ce (F&I) ad­vi­ser re­gis­te­red with the Fi­nan­ci­al Ad­vis­o­ry and In­ter­me­di­a­ry Ser­vi­ces (Fais) in com­pli­an­ce with the Na­ti­o­nal Cre­dit Act. They’re the­re to help do a needs as­ses­sment and risk mi­ti­ga­ti­on and as­sist you with struc­tu­ring your de­al. The ad­vi­ser will tailor the de­al to your ci­r­cum­stan­ces - so don’t try to do it by your­self,” says Mo­ho­ney. “A car is the se­cond big­ge­st as­set, af­ter your hou­se, so u­ti­li­se t­his re­sour­ce to en­s­u­re you get the be­st pos­si­ble de­al on a lo­an.”

Newspapers in Afrikaans

Newspapers from South Africa

© PressReader. All rights reserved.