Dennise Williams, Staff Reporter
FINANCING YOUR new car purchase is an important decision that has a great impact on your cash flow. It is important that you don't get 'taken for a ride.' Now, we are going to take the position that you don't have the cash in full to purchase a vehicle. If you do, have fun shopping. For the rest of us, the options available consist of either accessing a loan or patiently saving towards the purchase of the vehicle.
DEALER FINANCING
One of the best ways car dealers have found to move inventory is to offer financing. So they extend to their customers a one-stop deal. Checks by Sunday Business revealed some of the deals being offered by a sample of dealers. Challenger Transport requires a 35 per cent deposit on vehicles. Interest rates are 23 per cent for four years. So consider these two vehicles:
1999 Toyota Starlet for $585,000
Deposit $204,750
Loan $380,250
Monthly payment
$12,187.57
Total interest paid
$204,753.95
2000 Honda Civic for $840,000
Deposit $294,000
Loan $546,000
Monthly payment
$17,500
Total interest paid
$294,019.34
Mac D's Auto Sales outlined their loan programme for Sunday Business.
2000 Station Wagon (declined to give model) for $490,000 at 23 per cent interest for 4 years with a 25 per cent deposit required.
Deposit $122,500
Loan $367,500
Monthly payment
$11,778.91
Total Interest Paid
$197,887.95
At New Line Motor Co. Ltd., Sunday Business found these two deals. They require a 35 per cent deposit on all vehicles but offer financing of 22 per cent interest and give four years to repay.
1999 Honda Civic
Deposit $283,500
Loan $526,500
Monthly payment
$16,587.94
Total interest paid
$269,721.59
1998 Nissan Sunny
Deposit - $189,000
Loan - $351,000
Monthly payment
$11,058.63
Total interest paid
$179,814.39
CREDIT UNIONS
Dealer financing may not be for you, especially if you are a member of a credit union. One of the big advantages of credit union loans is that interest is calculated on the reducing balance with another advantage being that most loans come with a life insurance addendum. This means that if you pass on before the loan is paid off, the insurance pays the loan in full and your loved ones have the vehicle free and clear. But check your particular credit union for details on the insurance aspect of the loan you are seeking. At the City of Kingston Co-operative Credit Union (COK), it was explained that there are several options available.
If the vehicle you wish to buy is 1997 or older, you must provide additional security for the loan. COK will finance 50 per cent of the market value of the vehicle with terms of 24 per cent interest charged for two years. So, if you borrowed $200,000 your monthly payment would be $10,574.
COK also has a special financing programme with Crichton Automotive Ltd. In this programme, for vehicles 1998 and younger, COK will finance 70-90 per cent of the market value. Additionally, the interest rates are 22-25 per cent, again on the reducing balance.
For vehicles 1999 and younger, COK will finance from 60-90 per cent of the market value.
Churches Co-operative Credit Union will only finance vehicles 1994 and younger. The interest rates on the reducing balance are between 22-24 per cent. The percentage charged is dependent upon the length of time you have been a member and your credit history with the bank. Churches finances 60 per cent of the market value and allows repayment within four years. So for a 1998 vehicle, a loan of $200,000 would entail a monthly payment of $6,850.00 over four years. If you choose to pay off your loan faster in say two years, you would pay $11,109 monthly.
COMMERCIAL BANKS
Most of the commercial banks that offer vehicle loans require the vehicle to be year 2000 or younger. At the National Commercial Bank (NCB), the interest rate is 12-16 per cent add on. This means the effective rate is 23-31 per cent. This range of interest charged depends on a number of factors including the age of the vehicle; this is also the case for the amount that will be financed by the bank. According to the loan officer at NCB the following schedule applies:
| Loan Amount | Vehicle |
| Given (%) | Year |
| 50 | 2000 |
55 2001
6 2002
65 2003
80 Brand new
If this appeals to you, a loan for $200,000 on a year 2000 car over three years will cost you approximately $7,888 per month. This calculation uses a 14 per cent add on rate, but the loan officer states that individuals must come into the bank and be interviewed to determine the exact interest rate to be charged.
EMPLOYER LOANS
In some firms, the employer will offer financing for their staff members. According to Yvonne Davis, communication and training manager at the Jamaica Employers Federation, this benefit is usually geared to upper management and travelling staff.
"Most companies that offer help in purchasing vehicles have revolving loan fund that is supported by an initial sum provided by the company and then supported by the repayments of staff. But that particular strategy is used to retain top-level staff. Also employees that must travel on behalf of the company will usually be able to access funding. But this benefit is usually not offered to staff under the supervisory level. But underpinning that is the company's ability to afford this service, because it does require a substantial pool of funds to be put aside by the firm, as most companies give 80 per cent financing."
PATIENCE
For some, the rigours of getting outside financing are just not worth it. If that sounds like you, perhaps you should consider self-financing. That's right savings. Getting the money together for a car the hard way, without a loan, will require discipline. Let's say that your target is to save $400,000 for the purchase of a car. In two years, with an account earning interest rate of 13 per cent (9.75 per cent after taxes) your would need to deposit $13,367.54 monthly or $3,076.37 weekly or $439.48 per day. This is about the same amount that you would be paying out to someone else. Think about it.
