When it comes to buying a new or used vehicle, customers are often confused by payment terminology. There is more than one way to buy a car – here are three financing options you can choose from.

Instalments

If you’re not buying your vehicle cash, then you’re going to have to pay it off monthly. This amount is decided on and it takes into account any deposit you may have or the trade-in amount from your current vehicle. Ultimately, you can pay off a car between 12 and 72 months. If you choose to the longer option, your monthly repayment will be less, however, the interest amount will add up and the total owed by you will be high. The best way is to try to pay the vehicle off as soon as possible.

Balloon payment

An instalment with a balloon payment plan is very similar to a plain instalment plan, however, there’s a percentage of the purchase price that is deducted, which results in a lower monthly repayment. The lower monthly payments will be easier, but the lump sum at the end of the financing deal is usually a surprise to many and people get into debt trying to settle the final amount.

Guaranteed Future Value

GFV works out the value of your vehicle in the future, based on whether it has been serviced, its mileage and condition. This total is then ‘guaranteed’ at the start of the deal. GFV contracts usually last for approximately three years and you will know exactly what your vehicle’s value will be after that period. You then have the following options:

  • you can replace the car and apply for a new GFV deal.
  • you can pay the remaining amount and become the legal owner of the vehicle.
  • you can return the vehicle to the dealership as long as you have looked after the vehicle and have not exceeded the mileage limit and serviced it a reputable service centre.

What this means is that you’re basically paying for the use of the vehicle, almost like a rental plan. If the vehicle has a mileage limit of 25 000 km in two years, do not exceed 25 000 km, otherwise, you will be penalised and lose money. It is extremely important that you are aware of the GFV terms and conditions.

Source: Drivingtests.org

By Wanita Wallace