How vehicle finance houses work All vehicle ﬁnance houses make their living by charging interest on the money we loan to buy our gleaming examples ofart in motion. They determine an “interest rate" which is a percentage ofthe price for the car. The interest rate is calculated by using the “repo rate" — the rate at which banks borrow money from the Reserve Bank — and adding a percentage. This percentage depends on your credit worthiness, which is determined by the amount of risk you present to the bank. This isn't rocket science - if you have no ﬁxed assets, have had a judgement against you for not paying debts and earn an average salary, then don't expect them to jump up with glee when you want to borrow for a new car. “Prime rate" is the interest rate at which they lend to a customer who is “good risk". Prime rate is the repo rate with a percentage added by the bank to cover its costs and a margin of proﬁt. A “good risk" can get between one and two percent lower than the prime rate. But always remember this is all open to negotiation with your ﬁnance house at the time you apply for a loan. Ifyou are not happy about the rate offered; shop around. Time waits for no man and neither does the interest rate. Generally, the longer the “loan period", the more interest you will end up paying.