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Cash or credit for a car purchase?

Jun 05 2013 12:51
Vehicle finance while under debt review.

(Shutterstock)

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A Fin24 user is in two minds about whether he should buy a car cash or on credit. He writes:

I have saved about R40 000 to purchase a car and the one I have in mind costs about R120 000. I would like to know which is better: to try and save and buy it cash, or to get car finance?

If I get car finance, what would be the likely interest rates?

I do not want to pay for a car for five years and would also like to know if it would be possible to pay it off in, say, 24 months or less and not incur any early payment penalties, even though I may have a 60-month contract.

Rudolf Mahoney of WesBank responds:

A lot depends on your personal preference. Now is a good time to consider the finance option, purely because interest rates are at record low levels.

Financing the car therefore allows you the opportunity to maintain a healthy balance in your savings account by not spending all of the R40 000.

In the context of the uncertainty that remains in the global economy, it is probably a wise thing to do. However, buying a car with cash attracts no interest and remains the cheapest option.

How urgently do you need the car, and can you wait to save the balance of the R120 000?

Interest rates are quoted based on your individual financial profile and therefore it is not possible for me to give you an indication of what you should expect.

Choosing a fixed or a linked interest rate also affects this. We are seeing that 75% of customers who currently finance their cars opt for fixed interest rates.

You can choose the contract period for your finance agreement, as long as it is not shorter than 12 months or longer than 72 months. A shorter contract period attracts less interest overall.

If you finance a car on an instalment sale agreement (99% of the business is done this way), the financier is not allowed to charge you penalties for settling the account early.

 - Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query. 

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. 

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.


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vehicle finance  |  money clinic
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