Key considerations when signing your vehicle finance contract

©Sergey Soldatov via 123RF

WesBank has some advice for car buyers who are about to take the plunge, to help them ensure they make the right financial decisions and remain in the know.

Ask, ask and ask again

When you arrive at the dealership to finalise the deal, you'll be guided through the process by the dealership's appointed Finance and Insurance (F&I) representative. F&Is are registered with the National Credit Regulator, and are bound to give you sound financial advice based on your circumstances.

As such, if you have any questions about your finance or deal, now is the last time to ask them. The F&I will have a checklist of important points that you have to completely understand before signing your contract and taking delivery of your new car. If you don't understand anything then you can ask for clarification and simpler explanations. Don't rush the signing process. Rather make sure you understand everything, so that you aren't surprised a month or two down the line.

Get familiar with finance

In the process of arranging your contract you'll be given the option to choose a fixed or linked interest rate. Know the difference, and how this will affect your budget in the short and long term. A fixed interest rate on your loan will be higher at first, but it will also remain the same for the duration of the loan. Conversely, a linked interest rate will be lower at first, and save you money. However, it also increases - and so will your monthly car instalment - when the Reserve Bank changes interest rates.

Make a decision about the contract period. This is how long you'll be paying off the loan. You can choose from 12 months, all the way to 72 months. However, the longer the contract, the more you end up paying in interest and fees. Ensure you know the advantages of putting down a big deposit. By doing so you will save on interest payments, and have lower monthly repayments.

If you have opted for a balloon payment to have lower, more affordable monthly repayments, make doubly sure that you know how much you will owe at the end of the finance term. Try to save money to help pay this off at the end of the contract, or else you'll need a new loan to cover the balloon payment.

Extras explained

The contract signing is when you'll be given a breakdown of what you are paying for. This will include the vehicle's invoice price as well as any delivery, licensing and admin fees. You will also be given the option to include any value-added extras. These are products that will enhance the vehicle ownership experience, and they range from extended warranty and service plans, to minor insurance products that provide paint and dent protection, or wheel and tyre insurance.

There are also products that protect your finance. These include value-added insurance packages that will refund your deposit in the event of a major accident or theft, and a gap cover insurance that will settle the car loan with the bank should your comprehensive insurance not pay the entire amount.

You will be given the option to include these products in your finance package, allowing you to spread out their payments over the term of your contract. Or you can opt to pay them in cash. If you're unsure about how this will affect your budget, simply ask the F&I about the advantages of each option.

Always be insured

One of the important documents you will have to take along when signing your contract is proof of comprehensive insurance. This only applies if you have an existing insurance policy and have opted to arrange your own insurance. If you have asked the dealership to arrange an insurance quote, they will have this document.

This is vital because you will not be allowed to drive the car out of the showroom without proving to the bank that the vehicle is insured. In the extreme scenario that you are involved in an accident straight after taking deliver of your new car, you can rest safe knowing that your insurance policy will cover everything.

The F&I will also explain that you are required to maintain comprehensive insurance on the car for the duration of the finance contract. This protects you and your finances: if anything happens to the car, the insurance will pay out the insured value of the car and you will not have to worry about paying back the loan for a car you no longer have.