In the excitement of buying a new car, some people make the mistake of not fully understanding the best finance options available to them. In the last of our 3-part Vehicle Finance series, we talk about Guaranteed Future Value.

The majority of South African drivers cannot afford to buy their cars outright and rely on vehicle finance from banks. There are a few different vehicle finance options available to customers, namely:

1. Balloon Payments
2. Installment Finance
3. Guaranteed Future Value

But how do you know which one is best for you? To help you make better-informed decisions, here is what you ought to know about Guaranteed Future Value.

GFV finance is similar to a balloon payment, except the residual value held over until the end of the term is guaranteed by the bank

– GHANA MSIBI, CEO OF WESBANK MOTOR DIVISION

Guaranteed future value, better known as GFV, is a form of finance suitable for drivers more focused on vehicle ‘usership’ than ‘ownership’. Simply put, GFV offers customers a clear indication of the future monetary value of their car to make planning ahead easier, but it does come with some mileage and maintenance restrictions, which need to be adhered to. GFV is best suited to customers who stick to a regular driving routine and have a good grip on the distances they drive annually.

At the onset of a GFV deal, the customer and the bank will agree on maximum distances to be travelled with the financed vehicle over the term (usually three to four years), as well as some guidelines about acceptable wear and tear.

At the end of the pre-determined contract term, GFV customers have three choices: they can either enter into another GFV deal and drive away in a new vehicle, settle the outstanding balance to own the vehicle, or simply return the vehicle to a respective dealership and walk away. It’s important to remember, however, that there may be penalties if the vehicle has exceeded the allotted mileage and/or been returned in an unacceptable condition.

“GFV finance is similar to a balloon payment, except the residual value held over until the end of the term is guaranteed by the bank, says Msibi. ” This means less risk and more options for the customer, as the outstanding amount set aside at the start of the agreement can be refinanced, settled with cash or walked away from. But, as with any contract, it is important for the customer to read and understand the fine print before signing on the dotted line.”

* All F&I consultants are regulated by the Financial Advisory and Intermediary Services (FAIS) Act and the National Credit Act (NCA).