Auto Mart is the biggest online buy-and-sell automotive marketplace in South Africa. With over 95 000 vehicles to choose from, there is simply no other portal that offers the same amount of stock. As a leading digital platform, it is key for us to provide information relating to the buying and selling of vehicles. In this article, we will take a look at the basics of instalment credit.

What is instalment credit?

In simple terms, instalment credit is a loan you pay off over a fixed period. How much you pay monthly is affected by the interest you pay on the loan amount, the repayment period, and the loan facilitation fees you will be charged.

How do car instalment payments work?

Once you’ve decided on the vehicle you want to buy, you will need to put in a loan application with the bank. The dealership’s finance department will usually assist you with this process. Once submitted, the banks will revert with approval for the loan or they might decline the loan application depending on the applicant’s credit score. If approved, the loan agreement will inform the buyer of the terms of the loan.

The banks or finance houses will also factor in the following to determine the loan agreement:

1. Is the buyer putting down a deposit? The bigger the upfront cash payment the less the monthly repayments will be because the buyer is lending a smaller amount.
2. Is the interest rate on the loan linked to the prime lending rate or is it a fixed rate for the duration of the loan period?
3. How long is the loan period? The longer the loan period, the higher the risk and the more the loan will cost the buyer at the end of every month.
4. The loan origination fees will also be factored in. These are the admin fees associated with getting the loan approved and paid out to the car dealership or seller.

Once all these factors have been considered, the buyer will be offered the loan by the bank and it will be provided to the buyer with a set of terms and conditions.

What if I don’t pay my monthly instalment fees?

When it comes to car finance, the banks will lend money to the buyer but they use the car as collateral. This means that if you don’t make your monthly payments, the bank has the right to repossess the vehicle. Repossession usually only happens if a buyer defaults on a consecutive number of payments, usually 60 to 90 days or 2 to 3 months of missed instalments.

Late fees and additional bank charges can also be incurred if payments are missed.

What happens if my car is repossessed?

If a buyer defaults on the car payments and their vehicle is repossessed by the bank, it is likely to be sold at an auction. The banks will do this to recoup the monies they lent the buyer for the car, which was paid to the dealership or seller that sold the buyer the vehicle. If the car is sold at auction and the bank does not recover its original loan amount, the buyer will then be liable to pay the outstanding balance.

Not all buyers have the money to pay cash for a car, and buying a vehicle on finance is a big commitment. If you do decide to finance a vehicle, make sure you fully understand the terms and condition of the loan and make sure you are in a stable financial position to cover the repayments for the entire loan period.

On Auto Mart, you can access our finance calculator to understand what a possible finance agreement might look like and even send your details to one of our finance partners for a finance application. Find your next car on Auto Mart today!