Car buying habits to change
Vehicle finance periods could be extended even further than the 84-month maximum some institutions are offering as car buyers try to reduce monthly instalments amid rising prices and costs.
The National Credit Act in 2007 lengthened average vehicle finance periods in the local automotive industry from less than 50 months to about 70 months. Some financial institutions are now offering terms of up to 84 months.
Although consumers tend to trade out of these contracts early when buying a new vehicle, a further increase in the average contract period could have meaningful interest implications for vehicle buyers. It could also compel them to keep vehicles for longer as it will delay the break even point in the finance period when the outstanding loan amount will be equal to the trade-in value of the vehicle.
TrendsStatistics from Standard Bank Vehicle and Asset Finance show how the percentage of vehicle finance applications with deposits have decreased over the last two years, while the percentage of applications with balloon payments (residual values) and the average contract term have surged.