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Cape Town - The top three things that people consider when buying a car are the cost of finance repayments, the cost of insurance instalments and fuel consumption, according to a survey by LiquidCapital.
Get the most out of your vehicle investment with these three steps.
Finance
There are various financing methods available, making it crucial to understand the risks of each involved.
"It is generally accepted that when purchasing a vehicle you should look to reduce the size of the principle debt by putting down a large deposit if you can and finance the remaining debt over the shortest term possible," said LiquidCapital.
This will reduce the overall financing costs on the vehicle, however it added that many people are choosing to finance their vehicle over longer periods and are also considering using a balloon payment solution.
"The balloon payment solution is designed to only finance the depreciation of a vehicle over a specific period."
It said the combination of these two methods allow the client to reduce the monthly instalment, but it also increase the clients’ risk.
"Positive equity (when the trade-in value of your vehicle exceeds what you owe the bank) is only achieved later in the contract term plus the client is paying additional interest on the debt as it is paid off over a longer period and the principle debt is not reducing as quickly".
The firm warned that 70% of clients who reach the end of their finance contract term and used a balloon payment do not have the funds available to pay the balloon payment. This means that they have to refinance the debt and this adds additional costs.
Insurance
Consolidating your household insurance with your car insurance could help bring down monthly premiums, suggested LiquidCapital.
Comprehensive insurance only covers the vehicle market or retail value - which decreases every year – and as such, insurance costs should then decrease annually too, it said.
"To save more on your insurance each month remember to contact your provider every twelve to eighteen months to ensure they adjust the market value of your vehicle noted on your policy and then adjust your insurance instalments based on the decreased value.
"It is important to note that comprehensive insurance will only pay out the market or retail value of your vehicle, should it be stolen, hijacked or written off after an accident, most of the time the comprehensive insurance payout alone will not cover the full amount actually owed to the bank."
In cases like these, additional cover may be helpful. Having service and maintenance plans will also go a long way in servicing unexpected costs.
Warranty
There are two types of warranties available:
- Manufacturer warranty comes standard with every new vehicle and includes the repair or replacement of certain parts in the event of mechanical and electrical failure;
- Extended warranty provides added security for the repair of certain parts and for a defined period of time after the manufacturer warranty has expired.
"This product provides less comprehensive cover than a manufacturer warranty and the benefits and exclusions should be carefully read and understood.
"It is important to note though that all warranties have some form of exclusions where certain components like the battery, for instance, are not covered for the term of the warranty," the firm concluded.
- 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.
Get the most out of your vehicle investment with these three steps.
Finance
There are various financing methods available, making it crucial to understand the risks of each involved.
"It is generally accepted that when purchasing a vehicle you should look to reduce the size of the principle debt by putting down a large deposit if you can and finance the remaining debt over the shortest term possible," said LiquidCapital.
This will reduce the overall financing costs on the vehicle, however it added that many people are choosing to finance their vehicle over longer periods and are also considering using a balloon payment solution.
"The balloon payment solution is designed to only finance the depreciation of a vehicle over a specific period."
It said the combination of these two methods allow the client to reduce the monthly instalment, but it also increase the clients’ risk.
"Positive equity (when the trade-in value of your vehicle exceeds what you owe the bank) is only achieved later in the contract term plus the client is paying additional interest on the debt as it is paid off over a longer period and the principle debt is not reducing as quickly".
The firm warned that 70% of clients who reach the end of their finance contract term and used a balloon payment do not have the funds available to pay the balloon payment. This means that they have to refinance the debt and this adds additional costs.
Insurance
Consolidating your household insurance with your car insurance could help bring down monthly premiums, suggested LiquidCapital.
Comprehensive insurance only covers the vehicle market or retail value - which decreases every year – and as such, insurance costs should then decrease annually too, it said.
"To save more on your insurance each month remember to contact your provider every twelve to eighteen months to ensure they adjust the market value of your vehicle noted on your policy and then adjust your insurance instalments based on the decreased value.
"It is important to note that comprehensive insurance will only pay out the market or retail value of your vehicle, should it be stolen, hijacked or written off after an accident, most of the time the comprehensive insurance payout alone will not cover the full amount actually owed to the bank."
In cases like these, additional cover may be helpful. Having service and maintenance plans will also go a long way in servicing unexpected costs.
Warranty
There are two types of warranties available:
- Manufacturer warranty comes standard with every new vehicle and includes the repair or replacement of certain parts in the event of mechanical and electrical failure;
- Extended warranty provides added security for the repair of certain parts and for a defined period of time after the manufacturer warranty has expired.
"This product provides less comprehensive cover than a manufacturer warranty and the benefits and exclusions should be carefully read and understood.
"It is important to note though that all warranties have some form of exclusions where certain components like the battery, for instance, are not covered for the term of the warranty," the firm concluded.
- 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.
