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Finance or lease? How to pay for your new car

Finance or lease? How to pay for your new car

The only thing that causes more consternation than deciding which car to buy is figuring out how to pay for it. With very few South Africans able to pay cash for a vehicle outright, it’s important to understand the options available when you’re ready to make this exciting purchase. Imperial Auto believe you should understand the difference between financing a car, and leasing it.

Learn about leasing

Leasing a vehicle effectively means that you are renting it by paying a monthly fee to use the car. When the lease term is over, you hand the car back to the dealership or you could choose to buy it back at the vehicle’s value at that time.


  • The monthly rental is fixed for the full period of the lease, and you won’t be affected by interest rate hikes – making it easier for you to budget for the full period of the lease.
  • The lease amount is likely to be significantly less than a monthly repayment on a loan would be.
  • Your monthly leasing fee usually includes comprehensive insurance.
  • Because the vehicle is never actually yours, you’re not vulnerable to unexpected loss in value when the time comes to look at a new vehicle.
  • Because leasing periods are shorter than conventional finance deals, the vehicle will most likely be covered by any warranties, guarantees, as well as any service or maintenance plans that are sold with the car.
  • You’ll get to have the thrill of a new car every few years, as you switch over to a new vehicle at the end of every lease term.


  • You will never own a car outright, unless you choose to purchase your vehicle at the end of the lease term.
  • If you choose to purchase the car at the end of the lease, you will be paying the market value of the vehicle at that date, with this price not taking into consideration any of the lease payments you have already made. You will most likely have to finance the full purchase price of this now-second-hand car, extending the time that you’re paying for the car significantly.
  • Many lease agreements place a cap on mileage, so you need to be aware of your average annual mileage before signing the agreement, or you could be penalised.

The facts about financing a car

Financing a car means that you will borrow money from a financial institution to purchase the car, agreeing to pay off a certain amount each month, with this amount including interest. You have some leeway in deciding the term of your loan, but it’s worth remembering that a longer term may give you lower payments, but you will pay more for the car in the long run because you will be paying interest for longer.

You can also choose to finance the vehicle and include a balloon payment at the end of the deal – which means that you have the flexibility afforded by a lower loan payment, but it also means that you will be liable for a lump sum at the end of the term.


  • Once you have made all the payments agreed to in your car finance deal, the vehicle is yours. You will keep it to use it, and will not have to pay for it any more.
  • Once you have paid the vehicle off, you will have that much extra wiggle room in your monthly budget – although it would be smart to continue to set that money aside every month in a savings account, in preparation for any emergencies.
  • If you decide to sell the car once you’ve owned it outright for a while, you will still realise value in the sale – and the better the condition of the vehicle, the more you are likely to be able to sell it for.


  • While your vehicle may initially be covered by a service or motor plan, once these have expired you will have to cover any service, maintenance or repair costs.
  • Your car’s rate of depreciation may be quicker than the rate at which you pay the loan off. That means that if you want to sell the car before the loan term is up, you may be forced to sell it for less money than you still owe the bank. This means that you will have to pay in money to get out of the deal.
  • You have no idea what your circumstances will be in a few years’ time, so if you opt for a balloon payment at the end of your finance deal, you could be in for some unforeseen monetary juggling – or you may have to refinance the vehicle in order to make the balloon payment, significantly increasing your cost of ownership.
  • Unless you pay a premium rate to fix your interest rate, you monthly payments will fluctuate as interest rates fluctuate. While you could benefit from falling interest rates, you’ll feel the crunch if interest rates go up.
  • You will need to shop around for the best insurance deal on your vehicle, as financial institutions insist that vehicles purchased with loans are covered.

All Imperial Auto dealerships have expert financial advisers on site to help you choose which option best suits your lifestyle, your needs, and your budget. Visit the Imperial Auto website at www.imperialauto.co.za for more information about dealerships near you, or contact the Imperial Auto Hub on 011 875 5852.

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