Don’t get carried away by a car
Work out the costs of getting finance for your dream vehicle
BUYING a car may be exciting — but it could also turn into a financial nightmare if you don’t do your research properly.
To start with, will you buy a new car, or a second-hand one? This is important, because the car’s age will influence your finance application.
For instance, Absa does not offer instalment finance for cars older than five years. WesBank is limited to cars less than 20 years old worth at least R30 000 when bought from a private seller.
Then you’ll have to decide whether to buy from a dealership or a private seller. A private deal might be cheaper, but you will have to ensure that the car won’t give you problems.
A dealer, on the other hand, will give you a degree of protection in the form of a warranty, but you’ll pay more.
Then you have to decide what car you want, what extras you have to have — and whether you can afford it. This will involve considering how much deposit you can put down and how much you’ll have to pay back a month.
A smart way to prepare yourself for car ownership is to put the car instalment you feel you’re comfortable paying into a notice account every month for a couple of months. Can you cope?
When you’re ready to buy your car, you can take the money you’ve set aside and include it as part of your deposit.
If the car you want costs R150 000 and you opt to pay it over 60 months (five years), and put down a R15 000 deposit (10%), your monthly instalment would be R3 003. This is if the interest rate is 12%. Over 60 months, you will pay back R180 180.
If you save that monthly instalment for five months so that you can provide a R30 000 deposit, your monthly instalment (at the same interest rate) would be just under R2 669.33. This would mean that, over 60 months, you will pay R161 959.80.
Considering the total cost — deposit and instalments — you will wind up saving R5 000 if your deposit is larger.
Banks also offer the “balloon payment” option, but this can end up costing you a lot more than you’d planned to spend.
With the same R150 000 car, if you choose to put down a 10% deposit and make a R45 000 (30%) balloon payment at the end of your agreement, your monthly instalment will be lower, at R2 452. But add up the deposit, the balloon payment and your AFFORDABILITY: Make sure you are going to cope with the instalment when buying a car monthly payments, and the car will end up costing you R192 120. That’s still less, however, than the R195 180 it will cost you if you merely put down a 10% deposit and pay the R3 003 a month for five years.
And make sure you can still pay to maintain the car, if interest rates increase (if you have a variable interest rate), petrol prices rise, insurance increases, you get speeding fines, or lose your job.