85.3% of car owners in SA have purchased a car on finance, and in spite the abundance of online vehicle finance calculators, buyers often end up signing paperwork without ever having a precise figure on the monthly repayments. When you think about it, monthly installments are a huge consideration. Indeed, after the sale, the driving experience and monthly costs associated with it are your responsibility. That’s an important metric to gauge before buying, but one that’s often difficult to do when employing online vehicle finance calculators.
There are three principal reasons why you will struggle to get an accurate figure on anticipated monthly repayments using a vehicle finance calculator. Of course, in theory, you should have all the correct, and the calculation should add up to an accurate figure, not so? It’s the part about “correct figures” that often corrupts the process. By comparison, getting a car valuation is an easy matter.
South African buyers still usually only experience final knowing when they’re signing at a dealership, or when their finance provider mails them the last vehicle finance quote on a privately financed sale. Three potentially elusive inputs often make employing a vehicle finance calculator problematic. We’re not saying don’t use a vehicle finance calculator, but make sure you have good figures on these three items and when in doubt, get them from a human being!
1. Interest rates can confuse vehicle finance calculators
When you first start looking at a vehicle finance calculator to gauge how much you can afford as a monthly premium, some information can be missing, as you don’t know the actual interest rate the bank will offer you until they send you an official quote. Your credit score, risk profile, affordability, and a few other factors will determine the interest rate the bank offers you.
Very often, an online vehicle finance calculator won’t allow you to record your given interest rate accurately. In other words, you might have gleaned a figure from the bank, but the vehicle finance calculator doesn’t factor this in well, or it only allows for incorrect increments. If you have a rate of, say, 11.2 percent, the vehicle finance calculator will just let you choose between 11, 11.5 and 12 percent.
Assuming that the vehicle finance calculator is sophisticated enough to allow for the rate input, there is another consideration. Choosing between a fixed or linked interest rate will impact the repayments calculated using a vehicle finance calculator. And, if you opt for a linked rate (an interest rate linked to the prime lending rate), monthly repayments are going to fluctuate as that prime lending rate moves up and down. For this reason, a linked rate is also known as a variable rate.
A fixed rate is more manageable to accommodate as a hard number when employing a vehicle finance calculator.
For many, contemplating buying a car with an exact worst-case scenario budget in their head is essential. If this is you and you're offered a variable rate, forecast this rate to change over the next six month period and budget accordingly. Recent interest rate spikes can even be collated to plan a mean number that you can expect as a worst-case scenario, but opting for a linked rate is always going to be more of a gamble than a fixed interest rate.
Fixed rates typically come in higher than the current variable, and many are tempted to score today and risk tomorrow. You’ll have to decide whether you’d prefer the security of a fixed rate or take your chances on a linked, variable interest rate. No matter which choice you make, any vehicle finance calculator employed needs to factor this correctly.
2. Car insurance confuses vehicle finance calculators
Another potential omission if not inaccuracy, is that most online vehicle finance calculators don’t account for car insurance inputs. It might seem like a small point, but how many times have we all sat months down the line, saying something like “Gee… I’m paying X thousand for this car in total, not what I thought I would.” Of course, if you have a fixed monthly car insurance cost, you can do a side calculation and get a total, but that sort of defeats the point. With many vehicle finance calculators, you’ll have to do it manually though.
Have that figure before going through the calculation online if your car insurance structure is one where premiums decline, fantastic. Any looming inaccuracies down the line are in your favour. If your insurer has warned you of a price hike coming, you should factor that into your figures too. Also, users who opt for diminishing premium car insurance would do well to remember annual car valuation checks.
3. Hidden costs don't show up on vehicle finance calculators
Finally, a vehicle finance calculator might not take into account any additional charges added by a car dealership, or the bank if it’s a private car sale. There are things like on the road costs, valet and admin fees, and a potentially long list of value-added products, like extended car warranties. These can all alter and inflate the total vehicle finance amount quite dramatically. Since the whole purpose of using a vehicle finance calculator is to walk in and buy with confidence with a fixed amount in your head, external costs like these remain hidden and can make a vehicle finance calculator inaccurate at best.
Arm yourself with this figure or figures if you can before running through any vehicle finance calculator. Some variables might only be calculated on the day of purchase - things like petrol or additional last runaround fees. All of this is fine if you settle "on the road costs" as a separate expense. These costs are typically extrapolated into monthly repayments, however, again meaning that the only time you’ll have a spot-on figure is when signing the paperwork at the dealership or with the bank if it’s a private car sale.
We’re not saying don’t use a vehicle finance calculator, but be aware of the limitations of vehicle finance calculators and always default onto a human if the process is proving dissatisfactory. No matter the great strides in AI and overall technology, nothing yet beats getting it from a human being! Be aware of these three pain points above, and you’ll already be streets ahead of the average buyer in terms of peace of mind.
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Article written by Kurt Farao
Self-starter and chief-editor of the Wheel Index blog, Kurt fell in love with cars after receiving a “car cake” on his first birthday. Now days very passionate about how consumers live, buy and sell cars within South Africa, he ensures the content on this site is both entertaining and education to all. In, his spare time he enjoys motorsports and race whenever a break is needed from the keyboard.
www.wheelindex.co.za
