Instalments, balloons and GFVs – here’s how to choose the best buying option…
These days there are loads of vehicle finance options available, but things can become confusing when trying to decipher the differences and when choosing what is best for you. Confusing terminologies, cryptic numbers and long lists of terms and conditions can be overwhelming and delay the process of finally being able to drive away in your new car.
“The temptation of a new car can sometimes lure a buyer into a commitment that isn’t an ideal fit for their budget,” says Ghana Msibi, WesBank’s Executive Head for Sales and Marketing. “Fortunately, there are flexible finance options for buyers to choose from. WesBank wants to ensure that all consumers fully understand what’s available so they can make smarter, more responsible decisions on their car-buying journey.”
WesBank has taken three of the most common purchase plans and simplified the jargon to help buyers choose the best payment plan for them.
1. Instalment finance
This is the most straightforward of all vehicle finance options. Monthly repayments are calculated on the purchase price of a vehicle minus whatever deposit is put down at the start of the deal.
Finance terms can be structured into time frames of between 12 and 72 months. The longer the term, the lower the monthly repayment will be, but be aware that interest will add up over longer terms and the total amount repaid to the bank will increase proportionally.
2. Instalment finance with a balloon payment
Similar to instalment finance, except a portion of the purchase price is set aside so that the repayments are calculated on a lower amount. Simply put, balloon payments are similar to deposits except they’re payable at the end of a term instead of at the beginning.
Buyers must be cautious of the amount put into a balloon because they will be responsible for the lump sum once the finance term is finished. While it may be attractive to have lower monthly repayments because a larger chunk of the purchase price is placed into a balloon, the repayment of a balloon can be an unexpected debt as this amount will either need to be settled or refinanced at the end of the deal.
3. Guaranteed future value
Guaranteed future value, also known as GFV or any number of brand-specific titles, is becoming an increasingly popular form of vehicle finance in South Africa. It is important to note that a vehicle’s value begins depreciating (losing monetary value) from the moment it leaves the showroom floor. In line with this depreciation, a GFV plan calculates what the future monetary value of a vehicle will be if specific conditions of vehicle condition, mileage and maintenance are met. This future value is guaranteed at the start of the agreement.
This makes planning ahead easier as consumers know exactly what their car will be worth once the pre-determined contract term (usually between three and four years) is reached. The customer is given three choices at this point – they can either enter into another GFV deal and drive away in new vehicle, settle the outstanding amount and own the vehicle, or simply return the vehicle to the respective dealership and walk away (provided the driver didn’t exceed the allotted mileage and the vehicle is in acceptable condition).
With a GFV plan, a consumer is essentially only paying for the use of the car. This is why it’s important to know more or less the distance the vehicle will cover during the GFV term. Consumers are liable for penalties if any conditions of the GFV agreement aren’t met.
WesBank offers a handy Purchase Price Calculator to help determine the loan amount your budget will support. While this calculator is only used for estimation purposes, it’s a good indicator of the price range in which you can shop. There’s also a Vehicle Finance Calculator to help work out monthly repayments based on term length, deposit, balloon amount and interest rate.
Every WesBank-approved car dealership has a Finance and Insurance (F&I) executive to inform and assist consumers in their buying journey. The F&I can give you financially sound advice and explain what you can and cannot afford because their role is regulated bythe Financial Advisory and Intermediary Services (FAIS) Act as well as the National Credit Act (NCA).