The interest rate is a very important number when financing a car. It will determine how much interest you will pay on your car loan. When it comes to interest rate you have two options.
You either go for a fixed or a linked interest rate…
Fixed Rate
A fixed interest rate means that the interest rate will be fixed and stay the same for the duration of your agreement. This is useful in an unstable economy where the interest rate fluctuates because it guarantees that your monthly instalment will stay the same throughout your car finance agreement.
Linked Rate
The second option is to have a linked interest rate. A linked interest rate is linked to the prime lending rate of a country. So if the prime lending rate decreases then your monthly instalment will decrease too and if the prime lending rate increases then your monthly instalment will do the same. Consider linked interest rates if you have some breathing room in your budget because your monthly instalment will differ from time to time.
Example: Interest rates
If you finance a car of R200 000 over a period of 60 months and your interest rate is 10% then the monthly instalments will be R4249.41 and the total finance amount would be R254 964.60.
If you finance that same car but at an interest rate of 15% then the monthly instalments would be R4758.99 and the total finance amount would be R285 539.40.
So between an interest rate of 10% and 15% you get a difference of R509.58 per month or R30 574.80 on the total finance amount. Therefore it is crucial that you make sure you get the lowest interest rate possible. At Auto123 we will shop your application across the board to over 8 banks and lenders getting you the best rate possible.