Bank vehicle financing is one of the easiest and most convenient ways of facilitating car ownership. While bank vehicle financing has continued to grow in popularity, it has some disadvantages which must be avoided by all means. Below are some disadvantages of bank vehicle finance.
Cost – It is a fact that a large percentage of the monthly installment you are likely to pay as a bank customer goes towards interest payments.This inflates the actual cost of your vehicle by as much as 50% by the time you have finished paying it off. In other words, a R200,000 car could end up costing you R300,000 once it’s paid off, that’s R100,000 of your hard earned money.
Qualifying is hard – When you apply for vehicle finance from the bank, you need to prove that you have a spotless credit history (with no judgements against your name or outstanding payments) and that you can afford the monthly car installment as a part of your household budget (this is called an affordability assessment). Once the bank is satisfied that you meet these stringent requirements, it will consider your application but for many South Africans it is becoming seemingly harder to qualify for credit and afford the monthly installments.
Balloon payments cost a fortune – Many vehicle finance plans allow you to deduct a chunk of your vehicle’s purchase price and pay it right at the end after your last installment has been paid, this reduces your monthly installment, but the balloon payment (the original chunk that was deducted at the beginning) will be due as a lump sum. Depending on the price of your vehicle, this amount could vary from R20,000 to over R200,000.