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MONEY MATTERS (1)
Changes to the National Credit Act (NCA) that took
effect on June 1 this year have been made to protect
both the South African consumer and the credit provider.
The aim is to ensure that consumers don't end up in
too much debt, and that credit providers do not recklessly
lend money to people who can't afford it. At the same
time the new act makes access to credit easier, as
some of the previous stringent legislative criteria
have been relaxed. It is, however, important to note
that all your financial information must be fully
disclosed at the time of application. Based on this
information, as well as other bank policies and criteria,
a full affordability assessment will be done. If you're
not lucky enough to be paying cash for your car (in
which case you may qualify for a substantial discount),
there are essentially four ways to pay for your car.
Instalment agreement
With the revised NCA, buyers are no longer required
to lay down a 10 per cent deposit, as was once the
case. But this is at the discretion of your credit
institution and depends on one's credit status. The
interest rate is negotiable, but also depends on your
credit record. Instalment repayment periods are no
longer restricted to 54 or 60 months. Vehicles can
be financed for longer periods, but one should be
weary of the allure of lower payments over a longer
period.
Balloon payments at the end of the repayment period
can also help with lowering monthly repayments, but
doing so means that you will be responsible for paying
a lump sum at the end of the term. It's also important
that you consider the make and model of vehicle you
purchase when you decide on the balloon payment, and
in addition to this you must also remember to calculate
your expected mileage over the term of the contract
to ensure that the re-sale value is in line with the
outstanding balloon payment at the end of the contract.
As was always the case, once the full amount has been
paid, ownership of the vehicle automatically passes
to the client. Thanks to the NCA you can expect more
user-friendly documentation, statements and related
correspondence in friendlier language.
Interest rate negotiations
The most obvious way to lower your monthly instalments
is to negotiate a lower interest rate with the bank.
Banks take many things into account when deciding
on an interest rate, but probably the most important
is your risk profile. It doesn’t matter how
much money you have in the bank, they are more concerned
about how you manage your debt. If you’ve got
a good credit record, then it will be easier to
negotiate. First-time buyers shouldn’t expect
miracles, however.
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