Car finance - Used Car Loans

Used car loans

Car loans and credit criteria

Used car loans

Buying a used car - the affordable option

Used cars can offer excellent value for money, generally won’t be cursed with the teething problems occasionally found in new cars, and won’t suffer that sharp depreciation in value the moment you take delivery.

Buying from a long-established and reputable dealership is by far the safest route, since the firm is unlikely to risk its reputation by selling you a dud.

Reputable car auctioneers may be another good bet. They sell vehicles from a variety of sources – private owners, banks, fleets and the trade – at prices varying from reasonable to remarkably low.

Buying a second-hand vehicle privately can be a nightmare. If you don’t know the seller or the car, then proof of ownership and a meticulous examination are the first essential checks against disaster. Take everything you hear with a pinch of salt, and even doubt some of the things you see. Bear in mind that the seller may have chosen to sell privately because he or she thinks there’s more profit in it, and could conceivably cover up evidence of rust and other defects. You are unlikely to be given a written warranty.

Paying for a used car

THERE are essentially five ways of paying for your car, each of which has certain advantages. Financing a used car, generally requires that the car is not more than 5 years old.

Instalment sale

This requires a minimum of 10 per cent of the purchase price for privately used vehicles (if the bank considers you a poor risk, it may demand more). The minimum repayment period is six months, the maximum 54 months (or 60 months for business use). The interest rate is negotiable. Ownership is acquired only after the final payment and settlement of any residual value (the latter applies only to business use). There are no tax benefits for private buyers, whereas business users (people who use the car for the production of income) may claim depreciation on capital and finance charges (interest), less private usage, provided that accurate records are kept. Tax recoupment is based on the vehicle’s market value when it is sold.

Lease

Similar to the instalment sale, except that ownership is optional at the end of the agreement period. Lease rentals and operating costs are tax deductible in proportion to business usage by motorists who use the vehicle in the production of income. Once again, tax recoupment is based on the vehicle’s market value when it is taken over.

Rental

In this case, the residual value risk remains with the renting company. VAT is payable on the rental, and there is usually no ownership option. Rental payments, operating costs and a reasonable deposit are tax deductible by business users.

Loan

In this case there is no deposit, the loan rate is negotiable, and VAT is payable on the purchase price. Depreciation is allowed at the rate of 20 per cent, and the interest is tax deductible. Tax recoupment is based on the vehicle’s market value when it is sold.

Buying for cash

Similar to the loan, except that the rate is equivalent to a loss of interest at the ruling investment rate.

Most banks will allow you to spend about 30% of your income on financing a car, preferably less.