Need an Auto Loan? Monday, April 2, 2012, pg 20

KOJO  wakes up at 3 a.m. everyday to avoid being caught up in the long queue at the lorry park and he wished this could be over soon.

Ama is always late for work. Her excuse? Besides having to take care of her family’s needs every morning, she lives too far away from her work place and its hellish getting a car to the office.

Michael has tons of bills to pay monthly, yet he is tired of boarding trotros and taxis to the office.. He has lost several important documents and even money on some occasions in the unreliable public transport.
In all the above scenarios, the characters will certainly welcome their own cars; if they can afford one.

But what if the costs of the cars are beyond them?  Well! That is why the banks and other financial institutions are available to help. But it is not that simple. As the demand for cars increase, some banks have developed loans mainly for the purchase of cars. So bingo! Auto loans are the answer.

But who qualifies for an auto loan? Everyone who has the ability to pay back the loan qualifies. An Auto loan does not come cheap. It is like any other loan but in this case, it is secured on the asset you are acquiring, that is the car.

Mr Bernard Otabil, the President and Founder of the Financial Literacy Foundation, walked Auto Matters through the auto loan acquisition process.

The first thing the bank will do is to establish the cost of the car. If it is new, an invoice from the dealer will do but if it is second hand, the bank will want to use a valuer (in this case the STC Valuation Centre) who will do the valuation based on the car’s condition.

The bank will then give you a percentage to pay. If it’s say GH¢ 25,000, you might be required to pay say GH¢2,500 and the rest spread over a period. It is important you do not to forget that you’ll pay interest on your loan.Think of the principal plus the interest component.

Sometimes the banks will add other hidden costs like insurance and administrative costs which will be quoted as part of the loan. Look at the interest and ensure that it is competitive.

According to Mr Otabil, who is also a Mirror Columnist, if you qualify for a loan in one institution, chances are you might qualify in other institutions as well.

“It is always better to shop around and look at the best possible options available to you. Get the best deal and ask what you want. After all, at the end of the day, you are the customer. The bank needs you and you don’t have to put yourself at the disadvantage,” he suggested.

Consider the impact of the loan on your personal financial situation. If your personal financial situation is going to be stretched, that is, if you are on a fixed income which is already catering for other commitments, you need to review your budget.

He cautioned, “it will not be in your interest to build on top of your stretched resources that will impact strongly on your finance.”

So for a recap, it is the ability to pay.
*Remember, it is a consumer loan you are taking. It is a loan that will not generate any form of income. The car will depreciate with time and the value will drop.
*Make sure it does not affect your finances in a bad way.
*Is it something you can really pay?
*Shop around, as if you can get it from bank A, you certainly may qualify for B or C as well, so ensure you get a competitive rate.
Luckily, there are a number of banks in Ghana offering auto loans and have some flexible terms. Here are the conditions that uniBank for instance has for its Unicar Loan.
- Be a customer of uniBank
- Must earn a minimum net salary of GH¢ 500.00 per month
- Must be a minimum of 21 years of age and not more than 60 years by which time the facility must have been fully paid.
- Must be a Ghanaian
- Non-citizens with valid work and residence permits. The tenor of the loan should fall within the tenor of work and residency permits.
- Minimum loan amount - GH¢ 5,000.00
- Maximum loan amount - GH¢ 25,000.00
- Motor vehicle should be for personal use
- Vehicle should not be more than 7 years from date of manufacture
- Valuation Report from State Transport Company (STC) for used cars
- Loan tenor 12-60 months
- Level of financing; 100%

To apply for uniCar Loan

- Fill a loan application form
- Provide pro-forma invoice
- Proof of employment and salary
- Provide proof of identity - Drivers License, Passport or Voters I.D.
- Vehicle's current road worthy certificate
- Car papers to be lodged with uniBank

Auto loans and Insurance
There are two forms of insurance you should be concerned about when going for a bank loan. Some banks or financial institutions require that you take insurance on the loan to ensure some level of protection for the loan.

This insurance policy, Mr Otabil said, would give the bank some confidence that the facility will be paid back, should the unforeseen happen.

The second insurance is the one on the car. You are required to insure the car but remember that in some cases, the bank will pay the first insurance for you to ensure that the car is insured.

But the problem is that the insured value is added to your principal which means that the insurance which you could have paid one off will now attract interest at a compounded rate.

The advice from Mr Otabil is, “make sure the first insurance payment is made by you. Do not allow the bank to do that. An insurance that could cost you just GH¢ 500 a year might accumulate interest up GH¢ 1,500/GH¢ 2,000, depending on the interest rate.”

So what percentage of your income can go into an auto loan? It is impossible to place a percentage of your income you can spend in servicing the loan.

Here is what Mr Otabil suggests, “It always depends on the disposable income you have for your basic and necessary expenditure like electricity, rent, and food savings and so on.”

“In most cases, cars are necessities and cannot be treated as a luxury. However, there are people who will drive certain type of cars to give them that level of status symbol.”

Auto loans are certainly the way out for many whose income will not allow them to pay cash and drive home a car of their choice from the garage or the showroom.

But Mr Otabil maintains, “In my view, if you really have the opportunity to save your own money and buy what you want, as against borrowing, it will help you save money in the long term. Because in the end, if you borrow say GH¢3,000 now, you might end up paying GH¢ 5,000 or GH¢ 6,000 and that is exorbitant in the long term.”

For entry level professionals who really need a car to be mobile, there are a few options open.
Check if your employer has a facility of a sort. If they do, it’s your lucky day. It is something you can consider because in most cases, the cost of the interest is much cheaper, if your employer is cushioning it.

You could also target jobs that come with cars as part of the string of benefits. In that case, you know your transportation is fully catered for.

What if your employer is not supporting you to get the car, nor does your job come with one but you have a consolidated salary that caters for everything?

Mr Otabil says, “just because you can afford a car does not mean you can drive a Range Rover, because at the end of the day, remember the car comes with maintenance and depending on its engine, it will consume fuel and that adds to your budget.”

“The purchase of the car is just one component; the others are maintenance, fuel and other wear and tear that will take place.”

In the end the decision is yours to make but as Mr Otabil puts it, “take a composite and holistic view and not just a narrow-minded view that you need a car  and the bank says you can get Range Rover so you’ll go and get it . There are many people driving cars they cannot maintain.”