Quick Links:

• What is a car loan?
• How long is a car loan?
• Short-term vs long-term loans
• Car repayment cost vs. loan term

Auto Mart is the most affordable and 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 a car.

In this article, we are going to discuss the pros and cons of car loan repayment periods and how they can affect a car buyer's pocket.

What is a car loan?

In its simplest form, a car loan is similar to any other loan where one party (usually a buyer) requests to borrow money from another party (usually a bank or finance house) to facilitate the purchase of a vehicle. The loan is granted on the basis that the buyer will pay the loan amount back over a period of time and agrees to incur a monthly fee for the loan in the form of interest.

How long is a car loan?

Car loans are usually offered by the lending party over periods ranging from one year and can be extended up to eight years. The longer lending periods are usually only offered on cars that are not older than two years.

Short-term vs long-term loans

Shorter loan terms usually cost less in interest fees because the period is much shorter. The actual vehicle repayment costs will be much higher, but the cost to lend the money will be far lower than the cost of a longer loan term. The principal workings behind the interest rates on car loans are as follows: The longer the period the more the risk, the longer the risk period, the higher the interest rates charged.

Let’s take a look at the following examples of some basic loan period calculations on a vehicle valued at R200 000 with zero deposit paid and interest charged at 13%. The below is to be used as a guide only and will give you a basic understanding of what your car loan might cost you when you look at the different loan periods offered by a financial institution.

Over 12 months, a R200 000 vehicle will cost a buyer around R18 000 per month. The interest amount will be around R14 500 and the total cost at the end of the loan period, when you factor in the admin and finance initial fees, will be around R216 500.

Whereas a R200 000 vehicle over eight years will land up costing you an additional R131 000.

The table below will give you a basic overview of the various cost structures:

Car repayment cost vs. loan term

Remember that the more you finance the greater the chances of you losing out when it comes time to sell the car. Finding a car loan term that works for you needs to be cleverly thought out before you just run off and buy a car.

Do your research and ensure that you can always afford the repayments and will be able to sustain them over a period of time.