What to watch when buy­ing a car

The Witness - Wheels - - MOTORING - — Wheels Reporter.

TRA­DI­TION­ALLY, South Africans have leaned to­wards bank fi­nanc­ing when buy­ing a ve­hi­cle but there are other op­tions which can be ex­plored to­day.

Leas­ing, for ex­am­ple, has gained pop­u­lar­ity over re­cent years, says Les Mc Mas­ter, chair­per­son of the Mo­tor In­dus­try Work­shop As­so­ci­a­tion ( Miwa).

“Al­most a third of con­sumers are leas­ing their ve­hi­cles in the U. S. al­ready, but the con­cept is rel­a­tively new here.

“It cer­tainly has ad­van­tages for South Africans in light of ris­ing in­ter­est rates, fuel hikes and a shaky rand, but whichever fi­nance op­tion you go for, make sure you know what you’re get­ting your­self into from the start,” says Mc Mas­ter.

He ex­plains that the main dif­fer­ence be­tween a lease and an in­stal­ment agree­ment is that in a lease agree­ment the buyer will not own the ve­hi­cle at the end of the term, but can rene­go­ti­ate the con­tract to take own­er­ship for the resid­ual value.

Lease con­tracts are also for shorter terms.

“Gen­er­ally, buy­ing a car, pay­ing it off and then keep­ing it for many years, re­mains the least ex­pen­sive way to go be­cause de­spite the fact that ve­hi­cles de­pre­ci­ate over time, they do re­tain some value that you can ap­ply to­wards buy­ing an­other car.

“If you lease a ve­hi­cle, you only drive it for a fixed pe­riod and your monthly pay­ments go to­wards pay­ing for the de­pre­ci­a­tion in the ve­hi­cle, not own­er­ship.

“Lease agree­ments also come with re­stric­tions on how many kilo­me­tres you can do dur­ing the lease pe­riod,” says Mc Mas­ter.

Which op­tion is bet­ter?

Mc Mas­ter en­cour­ages prospec­tive buy­ers to do their home­work first; re­search the op­tions and al­ways be aware of the fine print.

“Bank fi­nance can be costly as a large chunk of the monthly in­stal­ment goes to­wards in­ter­est pay­ments. Banks also want to know that you have a spot­less credit his­tory and that you can af­ford the monthly pay­ments on a ve­hi­cle.

“It’s a mis­take to base your af­ford­abil­ity on the re­pay­ment only.

“Re­search has shown that in the cur­rent mar­ket con­di­tions, the ac­tual monthly in­stal­ment of an en­try- level ve­hi­cle ac­counts for less than 50% of the to­tal cost of own­er­ship.”

He adds that buy­ers must also bud­get for fuel, main­te­nance and in­sur­ance be­fore de­cid­ing to go ahead with the pur­chase of a ve­hi­cle.

There are a num­ber of val­ueadded prod­ucts which can be built into the monthly in­stal­ment.

Be care­ful of ‘ value add’

Mc Mas­ter warns car buy­ers against sign­ing for a car with all the value- added op­tions with­out a clear un­der­stand­ing of how much th­ese will in­flate your in­stal­ment.

Ex­am­ples of val­ued- added prod­ucts are ser­vice and main- ten­ance plans ( used ve­hi­cles), dent and scratch pro­tec­tion, in­sur­ance short­fall cover and life, dis­abil­ity and un­em­ploy­ment cover.

An­other cru­cial con­sid­er­a­tion, says Mc Mas­ter, is de­cid­ing on a linked or fixed in­ter­est rate be­cause once you’ve signed the con­tract, this can’t be changed.

Ve­hi­cle own­ers with a fixed rate con­tract would have been hard­est hit by the re­cent in­ter­est rate hike.

“Now more than ever, a ve­hi­cle pur­chase should be thor­oughly re­searched and prop­erly thought out.

“Al­ways keep the prac­ti­cal use you want out of the ve­hi­cle in mind and con­sider your av­er­age mileage and the in­creas­ing cost of petrol,” he con­cludes.

Five DOs and DON’Ts

• Do draw up a bud­get to es­tab­lish af­ford­abil­ity. • Do leave enough spare cash in your bud­get to ab­sorb ris­ing costs such as fuel and in­ter­est rates.

• Do take the time to read and un­der­stand your fi­nance con­tract.

• Do con­tact the bank if you are in a sit­u­a­tion where you can­not meet your fi­nan­cial com­mit­ments.

• Do make sure you al­ways have com­pre­hen­sive in­sur­ance on your fi­nanced ve­hi­cle.

• Don’t overex­tend your bud­get.

• Don’t pro­vide the bank with false in­for­ma­tion about your af­ford­abil­ity.

• Don’t can­cel in­sur­ance when you are in a fi­nan­cial bind.

• Don’t rely on a large bal­loon pay­ment to make your in­stal­ments more af­ford­able.

• Don’t for­get to in­clude all costs in your bud­get — petrol, in­sur­ance, and main­te­nance.

PHOTO: JOHNBIGGS. ORG. UK

Let the len­der beware when it comes to fi­nanc­ing cars.

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