Other ways of financing

● Cash or your home loan

Paying cash for your vehicle is the cheapest way to buy one because you won’t pay any interest and, if you are saving to buy one, interest will work for you rather than against you. If you don’t have the full purchase price for a vehicle in cash, but you have made additional payments into your home loan or you can access money already paid into your home loan through an access bond, you could pay a lot less in interest if you pay for a vehicle out of your home loan. Repay what you borrow out of your home loan over a five-year term and not the remaining term of a typical 20-year home loan. If you finance a car over a long period, such as 10 or 15 years, you will land up paying many times the value of the car and the car will be worth very little for much of the time you are still paying off a large amount.

● Instalment with no balloon payment

You can pay off the car in monthly instalments for up to six years (72 months) either with or without a deposit. The longer the term, the more interest you pay. Ideally, you should put down a big deposit and structure the loan over the shortest possible time — that way you pay the least interest. Ask your finance agent to show you the quotations from all of the banks to make sure you’re getting the lowest interest rate. Rudolph Mahoney, WesBank’s head of brand and communications, advises car buyers to opt for a linked rather than fixed interest rate, “as the Reserve Bank is likely to cut interest rates further”.

● Instalment takeovers

An instalment takeover is often regarded as a way for someone with a bad credit score to pay off a car. It can work within a close family set-up, but it is illegal. If someone takes over your instalments and reneges on the payments, you, as the person who signed the finance contract, will still be contractually bound to pay the bank. It’s also risky for you if you want to take over a contract, because the “seller” could decide they want their car back, resulting in a messy dispute.