How to Buy Your First Car Using Car Loan

Good Morning 

How are you doing?

With soaring car prices, rising interest rates, reduction in car supply and rising fuel prices these days, buying a car for the first time can be a terrifying experience.

According to a recent article on Yahoo Finance, major car makers such as BMW, Infiniti, Kia, Tata Motors, MG Motor, Hyundai and Toyota have raised car prices twice this year, with many also delaying vehicle deliveries for months due to higher demand. The general increase in prices of goods (inflation) contributed to the increase in the cost of cars, as car manufacturers will require more funds to procure auto parts and others. For instance, US inflation as at August was 8.3%, and CPI for new vehicles (10.1%) and used cars (7.8%) were a big contributor to the rise.

Aside from the global increase in prices of cars, Nigerians are also faced with other associated costs such as an increase in levy, introduction of Vehicles Identification Number (VIN), an artificial intelligence manual that drives documentation processes in an electronically digitised format. This VIN is said to address the discrepancies in duties payable on vehicles of the same maker, year, and model.

Everyone has a dream car, depending on their social status, but not everyone can afford to buy their dream car. Therefore, budgeting and planning are important when buying your first car. This would require you to carry out good research by comparing prices and car vendors to choose the best option. For many people, a car is a necessity. But owning a car with a loan will push your budget and tie you to paying back a certain amount of money every month till full repayment.

One of the popular means by which you can fund your car is getting a car loan. A car loan is an amount of money you borrow from a bank institution or somewhere for an agreed period of time for the purpose of buying a car. 

Note that this article is not to argue whether you should save towards buying a car or borrowing to fund your car purchase (that is a different discussion for another day). This article addresses how you can buy your first car by means of borrowing.

Pros of car loan

• Immediate access to your car without having to wait till when you can save up.
• Ability to build your credit profile. If you are able to pay back within the stipulated time without defaulting, you can use this to build your credit profile.

Cons of car loans

• Interest and fees: Interest rate can be between 17% to 30% per annum.
• Risk of default: When there is a default in payment, the interest fee is added, too, and this automatically increases the total amount to be paid back.

How to get a car loan?

1. Have an idea of your kind of car

Before approaching a car loan company or business, you must know the type of car you want to buy. This will help you estimate how much you need to borrow.

2. Have a stable source of income

Whether you are an employee in a company or an entrepreneur, you must have the capacity to pay back the loan based on your frequency of repayment, which is usually monthly. Ensure your monthly loan repayment does not exceed 10% of your monthly income. Remember there are other needs to be met.

3. Maintain a good financial history

The bank or the auto-financing company would ask you to present your bank statement in order to judge your financial history. Some would ask for six months to one year.

4. Your organisation is an important factor

The type of company you work for is a huge factor in determining whether you will get a loan or not. If you work for a popular company or a multinational, then you have a higher chance of getting approved for a car loan in Nigeria.

5. Equity contribution

Most banks or auto-financing companies would require that you contribute a percentage of the total amount you need to buy a car, which could be between 20% to 40%. Before receiving money from the institution, it is necessary to obtain a proforma invoice from the car dealer. A proforma invoice is a draft invoice that shows that you have expressed interest in the vehicle and its price.

6. Payment of car insurance

You would also need to pay for car insurance, which is usually 5% of the value of the car. You would need to find out the insurance policy available with the auto financing company you plan to use. Some would recommend you use some affiliate insurance companies or use theirs if they have one. 

After all steps and documentation have been made, the money is disbursed to your account. The financial institution holds a spare car key to allow them to reclaim the car if the loan is not paid back in due time plus interest.

Did you find this newsletter useful? You can read previous newsletters here

Thank you for reading Money Africa’s Newsletter. Please feel free to share it.

Share

Do you have any questions? You can send an e-mail to [email protected] or send a DM to any of our social media channels. 

***

MoneyAfrica Premium Plan 

Are you a mid to high-income earner? Do you find communities a bit too busy? You should sign up for our premium plan. 

You can learn more about that here

MoneyAfrica Premium Plan

***

We often get questions regarding how to plan your finances to align with your relocation plans, especially for students seeking to further their studies. As always, we have heard you, and we have put together an e-book to help you navigate this. Simply follow this link, to get your FREE copy of the e-book: The Japa Encyclopedia.