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THINKING of buying a car? Chris de Kock, executive head of sales and marketing at WesBank, has 10 tips you should keep in mind when buying either a new or pre-owned car:
1. Fit for purpose
Buying a car should be based on the practical use that your vehicle is intended for. Pay special attention to the average mileage you travel per month and the car’s fuel efficiency. Consider buying a petrol versus diesel vehicle, and the ever-escalating cost of fuel.
2. Total cost of ownership
You should not base your affordability calculation only on the repayment of the instalment. Research has shown that in the current market condition, the actual monthly instalment of an entry level car accounts for less than 50% of the total cost of ownership.
Prospective buyers should also budget for fuel, maintenance and insurance before deciding to buy a new car.
3. New or used car?
A used car appears cheaper than the comparable new car, but inr the long term the cost of maintaining a used car will add up. In contrast, most new cars come with maintenance or service plans.
Having a maintenance plan also offers peace of mind that you won’t have any out-of-budget expenses to maintain the car. Depending on where you buy your pre-owned vehicle, you can have the option of purchasing a maintenance or service plan.
4. Fixed or linked interest rate?
Usually when interest rates are low, most customers opt to use a fixed interest rate, which sets the rate for the duration of the contract.
On the other hand when interest rates are high, most customers opt for linked interest rates – meaning that the rate of interest repaid on the vehicle every month will be linked to the prime rate, in the hope that this would go down, which would in turn would also reduce their monthly repayments.
You need to take care when deciding on a fixed or linked interest rate, because once you have made your selection and signed the contract, you cannot make a change.
5. The repayment period
Deciding on the repayment period is important. Choosing a longer period reduces the monthly instalment and this may initially appear attractive, but it accrues more interest.
In addition, the longer the period over which the car is financed, the longer it will take for the settlement value to reach break-even point with the asset value because of depreciation.
In short, this means it will take longer before you can trade in your car.
6. Paying a deposit
This has multiple benefits: it results in a smaller monthly instalment and also allows you to finance the car over a shorter period. It also means that if you so choose, you can trade the car in sooner.
7. Balloon payment or not?
A balloon payment is an inflated final instalment which is agreed upon upfront. It allows you to pay reduced monthly instalments but results in the previously mentioned break-even point to be significantly extended.
We also find that customers sometimes tend to forget about this inflated amount at the end of the contract, which can then turn into a nasty surprise.
8. Value-added products
You can choose from a number of value-added insurance products. There are products relating to the car itself, for example service or maintenance plans, tyre insurance and dent and scratch protection.
There is also shortfall cover, which protects you in cases where your insurance does not pay your claim in full. There are also various personal insurance products such life, disability and unemployment cover.
A thorough discussion with a finance and insurance specialist will help you make an informed decision.
9. Bring your documents
If you are making a dealership purchase, be sure to bring the documents you will need in accordance with Financial Intelligence Centre Act (Fica) requirements.
These include your ID, driver’s licence, payslip and proof of residence. If your salary is commission-based, you need to bring at least six months’ bank statements.
10 Thorough research
Especially in the current economy, a car purchase should be a thoroughly researched and properly thought-out endeavour.
These tips will not only bring you peace of mind, but should also ensure that you drive away satisfied with your purchase.
1. Fit for purpose
Buying a car should be based on the practical use that your vehicle is intended for. Pay special attention to the average mileage you travel per month and the car’s fuel efficiency. Consider buying a petrol versus diesel vehicle, and the ever-escalating cost of fuel.
2. Total cost of ownership
You should not base your affordability calculation only on the repayment of the instalment. Research has shown that in the current market condition, the actual monthly instalment of an entry level car accounts for less than 50% of the total cost of ownership.
Prospective buyers should also budget for fuel, maintenance and insurance before deciding to buy a new car.
3. New or used car?
A used car appears cheaper than the comparable new car, but inr the long term the cost of maintaining a used car will add up. In contrast, most new cars come with maintenance or service plans.
Having a maintenance plan also offers peace of mind that you won’t have any out-of-budget expenses to maintain the car. Depending on where you buy your pre-owned vehicle, you can have the option of purchasing a maintenance or service plan.
4. Fixed or linked interest rate?
Usually when interest rates are low, most customers opt to use a fixed interest rate, which sets the rate for the duration of the contract.
On the other hand when interest rates are high, most customers opt for linked interest rates – meaning that the rate of interest repaid on the vehicle every month will be linked to the prime rate, in the hope that this would go down, which would in turn would also reduce their monthly repayments.
You need to take care when deciding on a fixed or linked interest rate, because once you have made your selection and signed the contract, you cannot make a change.
5. The repayment period
Deciding on the repayment period is important. Choosing a longer period reduces the monthly instalment and this may initially appear attractive, but it accrues more interest.
In addition, the longer the period over which the car is financed, the longer it will take for the settlement value to reach break-even point with the asset value because of depreciation.
In short, this means it will take longer before you can trade in your car.
6. Paying a deposit
This has multiple benefits: it results in a smaller monthly instalment and also allows you to finance the car over a shorter period. It also means that if you so choose, you can trade the car in sooner.
7. Balloon payment or not?
A balloon payment is an inflated final instalment which is agreed upon upfront. It allows you to pay reduced monthly instalments but results in the previously mentioned break-even point to be significantly extended.
We also find that customers sometimes tend to forget about this inflated amount at the end of the contract, which can then turn into a nasty surprise.
8. Value-added products
You can choose from a number of value-added insurance products. There are products relating to the car itself, for example service or maintenance plans, tyre insurance and dent and scratch protection.
There is also shortfall cover, which protects you in cases where your insurance does not pay your claim in full. There are also various personal insurance products such life, disability and unemployment cover.
A thorough discussion with a finance and insurance specialist will help you make an informed decision.
9. Bring your documents
If you are making a dealership purchase, be sure to bring the documents you will need in accordance with Financial Intelligence Centre Act (Fica) requirements.
These include your ID, driver’s licence, payslip and proof of residence. If your salary is commission-based, you need to bring at least six months’ bank statements.
10 Thorough research
Especially in the current economy, a car purchase should be a thoroughly researched and properly thought-out endeavour.
These tips will not only bring you peace of mind, but should also ensure that you drive away satisfied with your purchase.
