Getting a car is the dream of many who seek a better way to travel without delays at their own pace and in their own privacy. However, every dream requires a plan to become reality and today’s article goes into some of the steps needed to finance your own vehicle.

The first step is to request your credit report from one of the three credit bureaus in Jamaica in order to get an assessment of your credit history. By law, you’re entitled to a free credit report once a year, with firms such as EveryData Jamaica (formerly Creditinfo Jamaica) allowing you to make the request and go through the verification process on your mobile phone.

It’s important to verify if the information is accurate from the reporting institutions who send information to the bureaus. If there is an error, dispute it and follow up on the matter since errors can impede your chances when you approach a financial institution. Most financial institutions will request that you pay for a credit report from a credit bureau for their purposes, but it’s good to understand your position ahead of that first meeting with that customer relations officer.

Utility and telecoms, open contracts, personal information, and the number of inquiries is typically displayed on the report.

You can then approach the car dealer or vendor to make an inquiry about the vehicle cost, if they have promotions with select financial institutions, and what’s required to secure the vehicle. You will be provided with an invoice detailing not only key information about the vehicle but also what percentage deposit can be used in lieu of a bank letter of undertaking (LU), which comes at a cost.

When approaching a financial institution ensure you have your ID; tax registration number(TRN); proof of address and name; contact for two character references; last three months pay slip; and an income verification letter from your employer. If you’re already a client of the institution, then only the last two items would be needed.

It’s best to shop around various institutions to gauge the market and see what interest rate is being offered by those entities, along with the terms for their clients. One bank might offer 8.75 per cent, another might offer 7.75 per cent, and another 9.35 per cent. Lower interest rates mean the loan will cost less over time. It also helps when budgeting for the potential purchase.

Remember to always inquire about a reducing loan balance and ask about their terms on variable rate loans. It’s also important to ask about the amortisation schedule for the term of the loan and if you can make additional payments against the principal balance of the loan during the tenure. Don’t assume that the representative’s claim about all loans being fixed is a fact, especially as many people are learning the hard way with different entities raising their monthly loan payments due to increasing interest rates by the central bank.

If you’re purchasing a new vehicle, then the bank can extend a longer tenure on the loan and up to 100 per cent financing, which means that no deposit would be required by the client. While this does mean you can get the car in a quicker turnaround time, it also means that the cost of the monthly payments and overall loan can be a lot higher. This could also disrupt your total debt service ratio (TDSR) and put it above the bank’s normally established limits. The TDSR is the total debt obligations divided by the monthly gross income.

Let’s say someone considers buying a 2023 vehicle valued at $5 million for 102 months or 8.5 years at a 7.25 per cent interest rate. If you have no deposit, the monthly loan repayment can cost $65,808.72. At a five per cent deposit or $250,000, the monthly loan repayment becomes $62,518.28 with a 10 per cent deposit or $500,000, resulting in a $59,227.85 monthly loan repayment. If someone is earning $130,000 gross for the month, then the TDSR for the person with no deposit would be 50.62 per cent versus 45.56 per cent with someone with a 10 per cent deposit.

Each institution will have their own risk parameters, but most don’t want clients to get closer to the 50 per cent mark if employed. Thus, increasing one’s earning power or reducing the monthly debt obligations would be best advised. At a $250,000 a month salary, the TDSR goes down to 26.32 per cent for someone without a deposit.

Apart from the credit report fee, there might be commitment fees and loan pre-approval fees. Some of these fees can be included in the balance of the loan, but it’s best to assess one’s financial state before making this move. With some promotions at specific dealers, you can pay one fee rather than multiple fees to the bank. Some banks also offer three months of no interest payments, but it would be wise to put this money down into a sinking fund for future expenses or upcoming loan payments.

For used vehicles, some financial institutions still allow up to 100 per cent financing on vehicles under four years and up to 90 per cent on a vehicle between five to seven years in age. If one chooses to go the used vehicle route, carry an auto mechanic that’s aware of the make and model of vehicle to assess the vehicle.

Loan payments aren’t disbursed until you’ve received the vehicle and signed off with the dealer. Thus, your first monthly payment will come in the period after the vehicle has been released to the customer and not when it arrives in the country.

Although the financing of a vehicle was discussed, ownership cost is another area that will be explored next week, especially as people don’t fully factor in the other associated costs that come with owning a vehicle.