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Car finance – fixed or linked rate?

Question

Hi there,
I am interested in buying a second hand car. The dealers I have interacted with so far suggest a fixed rate on the finance agreement – what is your advice on this? Does a fixed rate not mean that the total interest over the loan period is automatically deducted at the beginning, meaning that if I sell again before the loan period ends, I still owe the interest on the remaining months/years?

Thanks!


Answer

FINANCE
When you buy a car, you negotiate an interest rate and it is either fixed (like in this case) or will fluctuate with markets. Whether it is fixed or not, the interest is pre-calculated and added to the main purchase amount to determine your start up payment. With fixed rates this payment will stay the same if I understand what they suggest to you correctly. If the rates are not fixed then the payment will start at a point and increase as the rates go up. Either way, the interest is added because that is how they determine your payment. If you pay (for example) R3 000 it might mean that R1 000 is paid on the capital (original purchase price of the vehicle) and R2 000 on interest. It is very important that you try and pay as much deposit as you can on a vehicle because the interest is very high on vehicles as it's over a short period. Also see what the payment is on 3 years, 4 years etc. The longer the period the more the interest of course.

- Charné van der Walt

 
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