How to make vehicle financing work for you

Buying a car is a huge step but the process doesn’t need to be intimidating or confusing. To afford a car, you might choose to save up for years. However, if you have permanent employment and a good credit score, vehicle finance from a bank allows you to buy and drive that car now – and maybe increase your income – instead of waiting till you’ve saved enough to pay cash upfront.

Vehicle finance is a loan you take out to buy a car. The bank pays the dealer in full on your behalf, then you pay back the loan with interest in monthly instalments over an agreed term – usually between 12 and 72 months, although it can be longer in certain cases. The longer the term of the loan, the more interest you will pay in total. Although you get full use of the car and can register it in your name, it remains the property of the bank until the loan is fully repaid.

MFC, a division of Nedbank, works with a range of accredited dealers to ensure that buyers get cars that suit their needs – and MFC vehicle loans can be granted on both new and used cars. Used-car financing, however, is conditional on the vehicle being less than 10 years old and worth at least R50,000. You can learn more about the products and services that MFC offers via Online Banking, on the Money app, or when you’re browsing for cars on Avo Auto.

How MFC makes the vehicle-buying process simpler

MFC provides an online step-by-step guide to finding the right vehicle and financing it. First, you need to consider affordability. If you subtract all your monthly living expenses from your after-tax income, what remains is your disposable income. From that disposable income, you will need to be able to pay the vehicle loan instalments, compulsory insurance premiums, fuel costs, licensing fees, and the maintenance costs to keep the car in safe working condition.

You need to calculate all these costs when you’re working out affordability, which determines the size of the loan you may qualify for, and therefore the sort of car you can afford. You can make these calculations easier by using the MFC Budget Calculator and the MFC Instalment Calculator.

Browsing online can help you see all the options nearby

Along with affordability, your credit score is another factor that influences the loan amount you may qualify for. If you’ve managed debt responsibly in the past, you stand a better chance of having your loan application approved for the amount you need. You can check your credit score for free and learn ways to keep it at a satisfactory level with our credit score tool on the Money app.

Options that affect affordability

There are ways to make repayments more affordable if your disposable income isn’t quite enough to cover a loan to buy your dream car. You could save up for a few months until you have a sizeable deposit, so that you need a smaller loan with smaller monthly instalments.

The term of your loan is also a factor – if you’re paying an amount off over 12 months, the instalments will be much higher than those required to pay off a 72-month loan. A longer term means you’ll end up paying more interest overall, but it does make the loan more affordable.

If you don’t have a sizeable deposit, you might choose a balloon payment option, also known as residual. You’ll pay lower monthly instalments, but you are required to pay a larger amount in a lump sum at the end of the payment term. A balloon payment option is useful if you expect your income to increase steadily over the term of the loan. Or you could start saving in a notice or fixed-deposit account when you get the vehicle finance loan, so that you will have saved enough to pay the balloon payment when you need to.

If you can, choose car financing at a fixed rate. This means the interest rate is set for the term of the loan, so you can be confident that your instalments will remain the same. If your vehicle is financed at a variable rate, your instalments might increase if there is a rise in the repo rate, which will raise your interest rate by the same percentage.

You could also lease a car, rather than owning it outright. Lease contracts are typically structured for shorter terms, such as 36 months, so they can be an attractive option if you generally trade in your car for a new one every 3 or 4 years. You never own the vehicle, but your lease payments should cover extras like insurance, maintenance, repair and replacement. You can also renew your lease when it’s time for a new vehicle, thus avoiding the hassle of trading it in and applying for new financing on another car.

Decide on the car you want with MFC and Avo Auto

Once you know what you can afford and start shopping for your dream car, be realistic and stay in your affordability range. Browsing online can help you see all the options nearby and find a range of cars for a shortlist, before you commit to a test-drive in any of them. You can browse accredited dealerships in your community via MFC, or the cars for sale in your vicinity via Avo Auto. MFC only accredits tried-and-tested dealers with a solid track record, to ensure that you always get the best in terms of quality and after-sales service.

Insurance ensures that an accident is an inconvenience, rather than a major financial disaster

Don’t limit yourself to one brand. If you are considering a used vehicle, you should know the model and year and check the mileage and the condition of the car carefully. You also need to know its service history. Once you find a car online that you like, new or used, be sure to book a test drive and check out the vehicle thoroughly, to make sure you’re satisfied with it before you commit to a purchase.

Apply for finance

Once you’ve found a car that you want to buy, consider the different financing options mentioned above and choose the one that best suits you. If you’re using the Avo Auto app, you will see several click-through options that can take you to the affordability calculator, or to apply for MFC finance, or to contact the dealer who listed the vehicle.

To submit an application, you need:

  • to be 18 or older;
  • to be a permanently employed salaried individual, earning a minimum salary of R6,500 a month;
  • to hold a valid South African driving licence with no endorsements;
  • to be a South African citizen or permanent resident; and 
  • to have a good credit history.

Documents you’ll need to complete your application:

  • A copy of your valid South African identity document or card.
  • A copy of the front and back of your South African driving licence. 
  • Proof of your income not older than 3 months. 
  • Your latest 3 months’ payslips if you are a salaried individual.
  • Your latest 3 months’ payslips and stamped bank statements if you are a commission earner. No internet bank statements will be accepted.
  • Proof of residence, such as an electricity or water bill, not older than 3 months.

Get insurance

It’s compulsory to get comprehensive insurance that covers the full loan term when you apply for vehicle finance from MFC or any other financial services provider. That’s why it’s important to include insurance costs when you’re calculating affordability.

You might think you’re ‘too lucky’ to need insurance, or that it’s a waste of money, but it’s much better to be safe than sorry. If your car is damaged or written off, you’re still liable to pay back the full amount of the loan, even if you can no longer use the vehicle. Insurance ensures that an accident is an inconvenience, rather than a major financial disaster.

When you finance your car with MFC, motor insurance can be arranged through Nedbank Group Insurance Brokers – or you could arrange your own insurance through the dealership, if you find a policy with a more competitive rate. But you must have proof of insurance before you can be granted a vehicle loan.

Sign the contract

Before you can drive away in your new car, you will be required to sign a release note (acceptance of delivery) confirming that you have taken delivery and that you are happy with the vehicle.

Follow the steps we’ve laid out above, and you could soon be a satisfied car owner. 

Did you know that if you take out MFC vehicle finance and open a Nedbank Savvy Plus or Savvy Bundle Account, you can get R200 a month cash back for the duration of your loan? For an affordable car loan tailored to your circumstances and value-added extras like cash back, choose the bank that’s best for your money.