Choosing the right vehicle finance package
Unless you are one of the fortunate few, most of us would have to approach a bank to secure funding for the purchase of that dream car. This could easily turn out to be an arduous task if you are not 'street wise' when selecting the financier, as competing banks will bombard you with numerous promotions and promises.
To ensure that you get a transparent, well-structured and affordable deal, you should consider factors such as lenders' experience, product availability, total agreement cost, ease of processing and transacting your application.
From the outset, let us start with the interest rate factor as most advertising and offers are centered around this aspect. To put this in perspective, a 0.25 per cent reduction in interest rate equates to RO2 per month, based on a loan amount of RO10,000.
Hardly an amount that will influence your decision on the type of vehicle you wish to purchase. Proof that headline interest rates alone do not provide affordability. What influence do loan tenures have on affordability you may ask?
Some financial institutions offer loan tenures up to 72 months, once again with the aim to increase monthly affordability. The downside to extended tenures is something called negative equity.
Negative equity purely refers to the outstanding loan amount versus the present market value of your vehicle at any given point in time. Customers could potentially find themselves in a situation where the outstanding loan amount is indeed higher than the expected market value, which could result in difficulty to sell the vehicle, should the need arise.
The most well-known method of vehicle finance is a hire-purchase agreement, structured as a fully amortised loan, paid back over a specified tenure. This method is most preferred by customers wishing to own their vehicles and perhaps retain their vehicles for longer periods.
Last but by no means least; you need to consider the lender and its complete proposition. This would include transparency in terms of upfront application charges, charges levied during the life cycle of the agreement and charges pertaining to the final closure of the loan as these all impact on the total cost of the loan and may not reflect the headline interest rate you were initially promised. Also, do read the terms and conditions of the agreement you are requested to sign as sometimes “the devil is in the detail.”
Finally, a worthy lender should also be a trustworthy advisor and as such offer vehicle finance packages and solutions that meet your financial needs and expectations.
This will surely provide you with the knowledge and comfort of who to approach and trust with your vehicle finance needs when next that shimmering dream car is calling.
Said al Adhali is head of personal financial services support and operations at HSBC Oman. If you have any queries on this subject or another topic related to his area of expertise, e-mail firstname.lastname@example.org