Level up Your Vehicle Finance Knowledge

For those eyeing that first set of wheels, whether it’s to cruise to your dream job or level up your side hustle, owning a car in Mzansi isn’t just about getting from A to B.  It’s a huge step towards Empowering Youth for Meaningful Economic Participation – the theme for this year’s Youth Month. Car ownership unlocks opportunities, widens your world, and gives you the freedom to build your empire.

But let’s be real! Forking out hard cash to buy a car is not possible for everyone in this economy. That’s where car finance comes in to save the day. But understanding your options is key to making a smart decision that fits your budget and your future goals. So, let’s break down the most popular finance choices in SA:

The original: Instalment sale

This is the classic, no-frills option to car financing.

• How it works: You borrow the full amount for the car from a financial institution. You then pay it back with interest in monthly instalments over an agreed period – usually between 56 and 72 months. Once you’ve made your last payment, the car is officially yours!
• The upside: It’s straightforward and you gain full ownership. Great if you plan to keep your car for a long time to build equity in it.

The plot twist: Instalment sale with a balloon payment

This option offers lower monthly payments upfront, which can be very tempting when you’re just starting out.

• How it works: A portion of the car’s price – the “balloon” or “residual” amount – is deferred to the very end of your finance term. This means your monthly instalments are calculated on a smaller amount, making them more affordable during the contract period. However, when the term ends, you’ll need to pay that big lump sum balloon payment to own the car. You can either pay it in cash, refinance it, or trade in the car to cover it.
• The upside: Lower monthly payments are a win for your immediate budget. But be warned! That balloon payment at the end can hit different if you haven’t planned for it. You need a solid strategy for that final big payment.

The game changer: Guaranteed Future Value (GFV)

This is the finance option that’s often overlooked but can be a serious game-changer, especially for first-time buyers who are still figuring out their long-term plans. GFV protects you from the eventuality of vehicle depreciation – that unavoidable reality where your car loses value the moment you drive it off the lot.

• How it works: With GFV, the lender guarantees the minimum future value of your car at the end of your finance contract. You’re essentially only financing the difference between the car’s purchase price and this guaranteed future value, plus interest. This means your monthly instalments are significantly lower than a traditional instalment sale.

At the end of your contract – typically three to four years – you have three options:

1. Trade it in: Swap your current ride for a brand-new one, using the guaranteed value to settle your old finance. If your car is worth more than the GFV, you get to keep the difference – score!
2. Keep it: If you’ve fallen in love with your car, you can pay the guaranteed future value and take full ownership. You can even refinance this amount if needed.
3. Return it: Provided you’ve stuck to the agreed mileage limits and kept the car in good nick (fair wear and tear), you can simply hand back the keys with no further obligations.

• The upside: This is where GFV shines! It transfers the risk of depreciation from you to the lender. They’ve committed to that future value, so you don’t have to stress about what your car will be worth. This is particularly advantageous for buyers who are planning to trade in their vehicle before the end of the finance term, which is a common move for young professionals and entrepreneurs who want to stay up-to-date with newer models or need different vehicles as their career or business evolves.

Because you’re aiming to keep that guaranteed value, you’ll naturally be more inclined to maintain your vehicle well and keep the mileage low – things that are generally good practice anyway, even with a traditional instalment sale. It’s a win-win for keeping your ride looking fresh and holding its value.

Unlocking your dreams: WesBank’s Graduate Finance

We know the struggle is real when you’re fresh out of varsity or college and trying to get approved for finance without a credit history. WesBank gets it, and its Graduate Finance product is specifically designed to empower young, ambitious South Africans who are ready to take on the world.

This product allows eligible graduates to obtain vehicle finance even if they have not yet built up a credit record. It’s a massive leg up for those eager to kick-start or grow their career, launch a business enterprise, and contribute meaningfully to the economy.

Lebo Gaoaketse, Head of Marketing and Communication at WesBank, puts it perfectly, saying: “For young South Africans, a vehicle is often more than just transport. It’s a critical enabler for career advancement and entrepreneurial pursuits, opening doors to new opportunities. So, if you’ve got that diploma or degree in hand and a steady income, check out WesBank’s Graduate Finance. It could be your express lane to independence.”

Your next move

Before you sign on the dotted line, though, do your homework. Compare interest rates, repayment terms, and always read the fine print. Understand the total cost of the loan, including any fees. Choosing the right finance option is a huge step in your journey to financial savvy.