Ten tips when buying a car this year
FOR most people, a New Year means a fresh start and a set of resolutions. If one of your resolutions this year is to become more mobile, or perhaps to help a family member become more mobile, and you are thinking of buying a car, don’t let this become one of the “resolutions that got away”.
Chris De Kock, executive head of sales and marketing at WesBank, has 10 tips to keep in mind when buying either a new or pre-owned car.
Always buy from a reputable dealership. You will be assured of the best possible service and this will also help to safeguard you from buying the proverbial “lemon”.
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 whether to buy a petrol or diesel vehicle, in light of the ever-escalating cost of fuel.
Total cost of ownership. You should not base your affordability calculation only on the repayment of the instalment. WesBank’s research has shown that in the current market conditions, the actual monthly instalment of an entrylevel 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.
Buying a new or used car? A used car appears cheaper than the comparable new car, but over 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.
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 paid on the vehicle every month will be linked to the prime rate, in the hope that the prime interest rate would move down over the duration of the contract, which would in turn also reduce the monthly repayment. You would need to take care when deciding on a fixed or linked interest rate, because once you have made your selection and signed the contract, the option of fixed or linked is set for the duration of your contract.
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 that it will take longer before you can trade in your car.
Paying a deposit. Paying a deposit has multiple benefits: it results in a smaller monthly instalment and also allows you to finance the car over a shorter period. This means that if you so choose, you can trade the car in sooner.
A 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 the inflated amount at the end of the contract, which can then be a nasty surprise.
Value-added products. There are a number of value-added insurance products to choose from. There are products relating to the car itself, for example service or maintenance plans, tyre insur- ance 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 as life, disability and unemployment cover. Having a thorough discussion with a finance and insurance specialist will help you make the most informed decisions.
Thorough research. Particularly in the current economy, buying a car should be a thoroughly researched and practical endeavour. The finance and insurance specialist on the dealer floor is there to assist and guide you in making the most informed decision. Remember that when applying for finance, you need to take a number of documents with you, according to the requirements of the Financial Intelligence Centre Act (Fica). These include your ID, driver’s licence, payslip and proof of residence. If your salary is commission-based you need to take at least six months’ bank statements.