What your need to know about vehicle asset finance
Ever wanted to buy a vehicle and not know where to start?
Jacolene Jansen Van Vuuren, Hammond Pole attorney in our vehicle and asset finance litigation department, provides a brief explanation of the type of agreements you can conclude when buying a vehicle. What you will need to apply for finance and what you need to look out for.
What can you afford?
Banks have affordability calculators on their websites which could assist you to calculate what your monthly instalments could be if you finance your car with or without a deposit. This will give you an idea of what you can expect to pay every month and whether or not you can afford the same taking your monthly income and expenditure into consideration.
What is a balloon payment and can you afford the cost of a balloon payment?
Balloon payments are associated with instalment sale agreements. They allow a reduction in monthly payments by leaving a portion of the loan amount as a lump sum at the end of the contract period. The repayment of a balloon can therefore become an unexpected debt as this amount will either need to be settled or refinanced at the end of the term. Before you consider taking on a balloon payment, think about the following:
- How you will pay the balloon off. If you would have to take out another loan to cover it, or refinance or even sell your vehicle, is it really worth it? If the answer is no, then it’s probably not the solution for you.
- Use the affordability calculator provided by the banks to calculate what your monthly instalments could be if you finance your car with a deposit or a balloon payment.
- If there is no way to avoid taking on a balloon payment, take up top up insurance. Most insurance companies will only cover the retail value of the vehicle should your vehicle be involved in an accident. With top up insurance, the total amount you owe on the vehicle, including the balloon payment, will be completely covered.
There are various agreements you can conclude with the banks when buying a vehicle. The most common agreements include instalment sale, lease, rental and agility agreements.
Instalment sale agreement: concluding an instalment sale agreement means that you purchase the vehicle at a fixed or variable interest rate and that you will be paying instalments over a minimum of 24 months and a maximum of 72 months. Ownership of the vehicle will only pass to you once you pay all the instalments.
Lease / rental agreement: concluding a lease / rental agreement means that you will pay rent to the bank and give the vehicle back at the end of the term for a new vehicle. Ownership will thus never pass to you as the bank will remain the owner.
Agility agreement: concluding an agility agreement means that you will pay instalments to the bank and at the end of the period the bank agrees to buy the vehicle back at its guarantee future value. When your agreement comes to an end you have the option to trade, retain or return your vehicle.
All these agreements provided by the various banks are subject to their own terms and conditions as well as account or facility terms and conditions and should be read and considered carefully. These terms and conditions must be read together with and form part of each agreement. In the event of conflict between the terms and the agreement you conclude, the provisions of the agreement will prevail to the extent of the conflict.
The banks reserve the right to amend the terms and conditions at any time and from time to time, without prior notification to you. Any such amendments shall come into effect immediately and automatically and you are bound by the latest version of the terms and conditions as published on their websites.
What you will need when applying for finance:
You will need proof of residence, driver’s license, proof of income, 3 months bank statements, and a copy of your ID.
To conclude, when choosing a vehicle, think of it as a long-term commitment and focus on the benefits of making a decision that’s within your means. Speak to your bank. They will be able to help you find the best and most practical solution based on your financial reality, one that is not going to send you spiralling further into debt.