7 Costly Mistakes to Avoid with Vehicle Finance in South Africa

By Princella Esther Agyei Certified Credit Counselor & HR Manager, HR People Associates
There are few feelings as exciting as getting the keys to a new car. The smell, the technology, the freedom of the open road—it’s a major life milestone. But in the rush of excitement, it’s easy to overlook the most critical part of the purchase: the finance agreement.

That multi-page document you sign is a legally binding contract that will impact your finances for the next five to seven years. A small oversight or a simple mistake made in the showroom can end up costing you tens of thousands of Rands over the life of the loan.

Before you put pen to paper, stop. Take a breath. Read this guide. We’re breaking down the seven costliest vehicle finance mistakes South Africans make and showing you exactly how to avoid them.

The 7 Costly Mistakes of Vehicle Finance

Mistake #1: Walking into the Dealership Unprepared

You’ve found the perfect car online and you rush to the dealership for a test drive. The salesperson knows you’re excited. When it comes time to talk numbers, you have no leverage because you haven’t done your financial homework.

• The Problem: When you rely solely on the dealership for financing, you are a captive customer. You have no benchmark for what a good interest rate looks like, so you are more likely to accept the first offer they give you, which may not be the most competitive.
• The Solution: Get Pre-approved. Before you even start shopping for a car, apply for vehicle finance pre-approval from your own bank. This gives you a firm budget and a competitive interest rate to use as a negotiating tool. You can walk into the dealership and say, “I’m approved for R300,000 at X% interest. Can you beat it?” This puts you in complete control.

Mistake #2: Fixating Only on the Monthly Payment

“We can get you into this car for just R4,999 a month!” It sounds great, but this is a classic sales tactic. A lower monthly payment is often achieved by stretching the loan term or adding a large balloon payment, drastically increasing the total cost of the car.

• The Problem: A low instalment can hide a high interest rate and thousands in extra costs over the long run.
• The Solution: Always Ask for the “Total Cost of Credit”. This figure shows you the full amount you will have paid (the price of the car PLUS all interest and fees) by the end of the loan. Compare this number between different offers, not just the monthly payment.

Mistake #3: Misunderstanding the Balloon Payment

A balloon payment is a large, lump-sum payment that you are required to pay at the very end of your loan term. It lowers your monthly instalments, which makes it seem attractive.

• The Problem: It is not a discount. It’s deferred debt. After 5 or 6 years of paying, you still owe a large amount (e.g., 30% of the car’s original price). Many people are shocked when this payment comes due and are forced to refinance or sell the car just to cover it.
• The Solution: Use with Extreme Caution. Only consider a balloon payment if you are disciplined enough to save for it separately or are certain you will be in a financial position to pay it off. For most people, a standard finance agreement with no balloon payment is the safer, smarter choice.

Mistake #4: Ignoring the “On-the-Road” and Admin Fees

You negotiate a great price on the car, but when you see the final contract, there are thousands of Rands in extra fees: “on-the-road fees,” “dealership admin fees,” “licensing and registration fees.”

• The Problem: These fees can significantly inflate the total loan amount. Some are legitimate (like licensing), but others are essentially extra profit for the dealership and can often be negotiated.
• The Solution: Demand an Itemised Breakdown. Ask for a line-by-line explanation of every single fee. Question any that seem vague or excessive. A reputable dealer will be transparent about these costs.

Mistake #5: Not Shopping Around for Finance

The dealership’s Finance and Insurance (F&I) manager is convenient, but their job is to sell you the finance product that benefits the dealership. This may not be the best deal for you.

• The Problem: You could be leaving a much better interest rate on the table by not exploring other options.
• The Solution: Make the Lenders Compete. Your pre-approval from your bank is your starting point. Let the dealership F&I try to beat it. Also, consider getting a quote from another major finance house like WesBank or MFC. A 1% difference in the interest rate can save you thousands over the loan term.

Mistake #6: Choosing the Longest Possible Loan Term

To lower the monthly instalment, you might be tempted to choose the longest available loan term, which is now often 72 months (6 years).

• The Problem: The longer the loan, the more interest you pay. Furthermore, cars depreciate quickly. On a long-term loan, you can easily find yourself in a situation where you owe more on the car than it is actually worth (known as being “upside-down”).
• The Solution: Aim for the Shortest Term You Can Afford. A 60-month (5-year) loan is a much safer standard. You’ll pay off the car faster and save a significant amount in interest.

Mistake #7: Forgetting to Budget for Insurance

If you are financing a vehicle, the lender will legally require you to have comprehensive car insurance for the entire duration of the loan.

• The Problem: The cost of insurance, especially for younger drivers or more expensive cars, can be a major monthly expense that many people forget to factor into their budget.
• The Solution: Get Insurance Quotes Before You Buy. As soon as you know which car you want, get insurance quotes from several providers. Add this monthly cost to your finance instalment to calculate the true “cost of ownership” before you commit.

Conclusion

Buying a car should be a joyful experience, not one you regret for years to come. By being an informed and prepared buyer, you shift the power dynamic in your favour.

Take your time, do your homework, and never be afraid to ask questions or walk away. By avoiding these seven common mistakes, you aren’t just buying a car—you’re making a smart financial investment in your future.