Getting approved for vehicle finance can feel like the hardest part is over. In reality, approval marks the beginning of a financial commitment that will shape your budget for the next five or six years, and in some cases, longer. Understanding what you are agreeing to before you sign a vehicle finance agreement (VAF) is not just good practice; it is one of the most important financial decisions you will make.
Finance approval confirms that you meet the lending criteria. It does not confirm that the deal in front of you is the right one for your financial circumstances. Many South Africans are currently navigating rising living costs alongside vehicle purchase decisions, and the risk of overcommitting is real. The monthly instalment is the figure that tends to dominate the conversation, while the total cost of the agreement quietly tells a different story. It is always crucial to understand what you can afford rather than just looking at the monthly instalment.
“For many South African’s purchasing a car is one of the most important financial commitments they will make. It’s therefore important that you go in fully aware of what you are committing to. From the monthly instalment to insurance and all points in between,” says Lebogang Gaoaketse, Head of Marketing and Communication at WesBank.
Know your rate, and what it means over time
Your VAF will carry either a fixed or a variable interest rate. A fixed rate stays the same for the duration of the loan term, giving you predictable monthly repayments. A variable rate moves in line with the prime lending rate, which means your repayment can change when interest rates shift. Neither is inherently better, what matters is that you understand which applies to your agreement, and that you have budgeted accordingly.
Loan terms typically run between 60 and 72 months. A longer term lowers your monthly instalment, with the total amount repaid over the life of the agreement increasing accordingly. Be sure to ask your financier to show you the total repayment figure not just the monthly number.
Some agreements may include a balloon payment which is a lump sum deferred to the end of your loan term. It reduces your monthly instalments during the agreement. The challenge arises at the end of the term, when the balloon becomes due. If you are unable to settle it outright, you will need to refinance, which means taking on a new loan and additional interest. Before agreeing to a balloon payment, have a clear plan for how you will manage it when the time comes.
“Too often, consumers focus on whether they can afford the monthly repayment rather than whether they can afford the vehicle,” says Lebogang Gaoaketse, Head of Marketing and Communication at WesBank. “The instalment is one line item. Insurance, fuel, maintenance, and tyres are not optional extras, they are part of the true cost of ownership, and they need to feature in your budget from day one.”
Your agreement will also include terms around early settlement or prepayment. Should you wish to settle your loan before the end of the term, there may be associated costs. Understanding these upfront means you will not be caught off guard if your circumstances change. Equally, missing repayments carries consequences beyond a penalty fee — repeated missed payments affect your credit record and your ability to access finance in future. You should as these five questions to ask before you sign:
- Is the interest rate fixed or variable?
- Does this deal include a balloon payment, and do I have a plan to settle it?
- What is the total repayment amount over the full loan term?
- What are the early settlement terms?
- Have I budgeted for insurance, fuel, and running costs?