Improving car financing
Not many people can afford to buy a car with cash. Hence we need to explore other avenues so that we can live our dream of owning our own car. One of these avenues is going to a bank and applying for a special loan called “car loan/car finance”.
Even though it is not a complicated process, it can be confusing to know if this is the right avenue for you to buy your car. It is important to note that before you head to the bank, you need to know how much you can afford and which car you would like to buy.
As I stated in one of my previous articles, it is crucial to think long and hard before you take a loan from a bank. In that article, I shared that you need to ask yourself the following questions: Will it help me to achieve my financial goal? Can I afford it? Is it convenient? If your answers to those questions are “yes” then you can proceed to explore your options.
In this article, I will share the steps you should take when you decide to finance your next car, and also what banks need to do to improve auto financing in Tanzania.
There are three steps that you should take when you are trying to finance the purchase of your next car. The first step is to look at your financial status. You must review your monthly budget and cash flow to figure out if you usually have money left to cover extra obligations after your necessity needs.
In case there is no money left for additional obligations, look for areas where you can cut your costs to have more room in your monthly budget.
Through this exercise, you will be able to gauge how much money is left for you (how much you can afford) for your next car. After knowing how much you can afford for your next car, the second step is to find the car that you would like to buy.
When you know exactly what kind of car you want, it makes you focus on what you need and not what you want.
You should take your time on this step to find a car that suits your needs both personally and financially. Usually, there are a lot of sales and deals that are being offered by car dealers hence it is important to visit as many car dealerships as you can to explore the opportunities.
Once you have found the car that meets your need, the next (and third) step is to look for the bank that can offer you the terms and conditions that fit your budget. This step can be done earlier simultaneously with the previous step of looking for your specific car. The reason is that many banks have certain requirements on types and features of the cars that they can finance.
of those requirements are a date of manufacture, how many miles/kilometres the car has and size of the engine. In addition, the reason it is advised to do these steps simultaneous is to get the pre-approved amount from a bank to give you an idea of a specific finance amount that you will qualify for.
This will limit your options of the cars as you will have to work within the specific approval amount approved by the bank.
Once it is approved and agreed, the bank will communicate and prepare the finance agreement which will detail the terms of the loan including how much you will pay every month, for how long, and the interest rate you will be charged.
An interest rate determines how much interest and monthly instalments you’ll pay on your car loan. You can usually choose between fixed rates and variable rates but almost all banks in Tanzania offer an interest rate based on market conditions (so a variable rate).
Next week, I will share steps the banks need to take to improve auto financing in Tanzania.
