In South Africa, owning a car is much more than a convenience – it's a cultural symbol of success and independence. From the moment we start earning, most of us begin thinking about buying a car, and as our careers progress, upgrading to better models become the norm.

For most South Africans, buying a vehicle involves some form of finance; however, vehicle finance can be complex, with numerous variables and nuances to consider when deciding how to fund your dream ride. ‘Choosing the right vehicle finance is crucial not only to managing your budget effectively,’ says Dumisani Zwane, Executive at MFC, a division of Nedbank, ‘but also to ensuring that the choices you make today align with your future lifestyle and long-term financial goals.’

According to Zwane, instalment sales, leasing, and guaranteed future value loans are the most common ways South Africans use to slide behind the wheel. He offers some insights into each of these funding methods:

• Instalment finance

The bank effectively pays for the car, less any deposit you put down, and then you repay the loan in monthly instalments over a period of 12 to 84 months. ‘Don’t over-commit yourself financially,’ Zwane advises, ‘because interest rates can go up, which will increase the amount you have to pay back every month.’

• A word about balloon payments

One common way to reduce monthly repayments is through a balloon payment—a lump sum payment at the end of a vehicle finance agreement. Zwane recommends caution. ‘While balloon payments can lower your monthly instalments, it’s crucial to plan for this significant final expense,’ he says, ‘because a balloon payment can be a financial shock if you aren’t prepared for it.’

• The pros and cons of instalment finance

Pros – You take ownership of the car when the loan is repaid. You have flexibility around the deposit and the loan duration.

Cons – The overall cost can be high if interest rates rise.

• Leasing

Leasing a vehicle means paying to use it over a set period and then returning it. It’s similar to renting, as it provides the benefits of using the vehicle without owning it. ‘Leasing is appealing to those who like driving a new car every few years,’ Zwane explains, ‘but who don’t want the hassle of trading in or selling their previous vehicle.’ Leased cars often come with maintenance and service plans, which can simplify budgeting for car care.

• The pros and cons of leasing
• Pros – Lower monthly payments. No concerns about the value depreciating. No need to sell the car when you want a new one.
• Cons – You never own the vehicle. Possible limits on how much you can drive. Penalties for ending the contract early.

• Guaranteed future value (GFV)

Also known as guaranteed buyback, this is an agreement where the finance company guarantees the car's value at the end of the term, provided certain conditions are met. This gives you the option to buy it, sell it back at that price, or trade it’s in.

• The pros and cons of GFV
• Pros – Lower monthly payments. Flexibility at the end of the term. Reduced risk of negative equity.
• Cons – Mileage and maintenance conditions with potential additional payments if those conditions are not met.

Zwane emphasises that when buying a car, it's crucial to remember that the loan or lease repayments are not the only expense. You also need to be aware of initial costs like delivery fees charged by the dealership, as well as ongoing costs like fuel, maintenance, and insurance. ‘Comprehensive insurance is mandatory for financed vehicles, which adds to the monthly cost,’ he says, ‘so you need to factor this in, as well as the costs of running and maintaining the vehicle.’

‘Do your research, use all the available tools like budget calculators, and consult with experts like those at MFC to ensure you choose the best financing option for your needs,’ Zwane recommends. ‘With the right approach and careful planning, owning a car can bring you much satisfaction and joy, instead of being a source of financial stress.’