Things to consider when buying a car
It’s a major expense – so make sure you know what you’re in for before signing on the dotted line
APART from property, a vehicle is probably the most expensive thing you’ll buy in your life. But unlike with property, a vehicle’s value doesn’t increase, even though it’s a huge expense.
In fact, quite the opposite – the moment you leave the dealership with your brandnew set of wheels, its value starts to decrease.
That’s why you should buy something sensible rather than flashy – choose a car that suits your needs and budget, instead of a pricey car just to impress others.
WHAT CAN YOU AFFORD?
It’s important to be able to afford your monthly instalment easily.
No matter your financial situation, a good rule of thumb is that your monthly car expenses shouldn’t exceed 10% of your monthly income. If you don’t have a lot of debt the instalment can be 10% of your gross income, but the more debt you have the smaller your car loan should be.
A financial adviser can help you calculate what you can afford.
Car dealerships usually have a financing consultant who can help you work out what you qualify for. You need to have a valid driver’s licence, proof of residential address and proof of income (either payslips or bank statements).
Tip: try to improve your credit record before applying for finance. Check your credit record with a credit bureau – you’ll find a list on the National Credit Regulator’s website (ncr.org.za).
You’re entitled to one free credit report a year. A good credit score means you’re more likely to get a loan because it banks will see you as low-risk.
Pay your accounts on time and reduce other debt by paying off personal loans and credit cards.
THE DEPOSIT
A deposit is an initial cash amount you pay when buying a vehicle. Vehicle finance providers rarely grant 100% loans anymore and will ask you to put down a deposit of at least 10% of the car’s asking price.
So if you’re buying a car that costs R200 000, your 10% deposit will be R20 000. Try to save up for a deposit in as short a time as possible if you plan to buy a car.
There are several benefits to paying a deposit: ▶ It lowers the monthly instalment, helping you to pay off the loan in a shorter period because the deposit is part of the total cost of the car. ▶ Because paying a deposit means you need to borrow a smaller amount, you pay less interest over time. ▶ Also, the larger your deposit, the less risk the finance provider is taking on lending you money – meaning your loan application is more likely to be successful. You can also negotiate a lower interest rate.
THE LOAN PERIOD
Your contract period is the time in which you’ll be paying off the car and can be anything between 12 and 72 months. The shorter the loan period the higher your monthly instalments, but you’ll end up paying less in total because you’re paying interest over a short period.
So don’t be blinded by the lower instalments of a longer loan period – ultimately you’ll pay a lot more for the car because of interest.
For example, you’re buying a vehicle that cost R180 000 and your interest rate is 10%. You pay a deposit of R20 000. If you: ▶ Pay off the loan over 48 months your monthly instalment is R4 565 and you’ll ultimately pay R218 133 for the car, of which R39 133 is interest*. ▶ Pay off the loan over 72 months your monthly instalment is R3 335 and you’ll ultimately pay R240 095, of which R60 095 is interest*.
FUEL EFFICIENCY
Because of steadily rising fuel costs, fuel-efficient cars are increasingly popular. To calculate a car’s fuel efficiency, the amount of petrol in litres (L) the car uses over a distance of 100km is measured. The lower the litres per 100km, the more efficient the car is.
For example, Cars.co.za and WesBank’s 2017-18 Consumer Awards rated cars in the Budget category according to value for money as well as fuel efficiency.
The winning car was the Suzuki Ignis 1.2 GL which uses 5,1L/100km. Finalists included the Kia Picanto 1.0 Style (5L/100km) and the Volkswagen Take Up! (4,6L/200km).
Bear in mind that car manufacturers’ statistics aren’t set in stone and can change because of external factors. How much petrol a car uses also depends on how heavily it’s loaded, how it’s driven and how well it’s maintained.
REMEMBER THE EXTRAS
▶ Car insurance. If you have a car
loan, insurance is mandatory. ▶ Extra security such as a tracker. ▶ Licence fees. They differ from province to province but are a few hundred rand a year. ▶ Maintenance. You’ll have to factor in regular services as well as occasional expenses such as changing the oil and buying and balancing new tyres. These days most new cars come with a service plan which includes for example services for a certain number of years or a specific number of kilometres driven (for instance, five years/100 000km). *Estimated instalment excluding
extra expenses