Coming up to the new year many potential car-buyers delayed their purchase to get ‘Model Year: 2016’ on the licence and registration papers. What a mistake that might turn out to be, thanks to the ANC’s ministerial financial musical chairs.
You know who to blame for that – so let it show on your voting slip later this year! Prices of cellphones, The Corner understands, are already set to rise by as much as 40% – think what that will mean on the price of a new car!
Unlike the fat cats in government, Joe Taxpayer doesn’t usually get a free car. Even if he does, the state takes a whack of his pay as a punishment.
END OF YEAR WORKS BOTH WAYS
So here, by way of finance house WesBank’s Rudolph Mahoney, are some purchase tips. WesBank, given that WesBank finances a large proportion of vehicles sold in South Africa every year, should know what it’s talking about…
“This exercise is not uncommon,” he says, “but it does have its drawbacks. Often a car purchased in January will have been subject to a price increase meaning your decision to delay could hit you where it hurts most – your pocket. And it may require careful budgeting to ensure you can keep up with the monthly instalments.
“However, if you’re replacing your current car in January, or if you’re a student getting a first car before heading off to university, WesBank has excellent advice for starting your new year’s budget on the right note.
“A new year with a new car – it’s a dream we all want to live but buying a car is not just a New Year resolution, it’s a five- or six-year commitment.” He suggests planning correctly from the start: that way your first year of ownership should go smoothly and personal finances will benefit.
START WITH A BUDGET
List all current and soon-expected income and expenses, see how much you have left, and shop around for a sensible car within that budget. “On average,” says Mahoney, “a young professional buying a first car at about 25 will own eight vehicles during his or her lifetime. The first will determine whether you’ll be stuck in a cycle of debt until you retire.
Buyers should take note of every amount they have to pay, no matter how small, and subtract those costs from their total income. The WesBank affordability calculator is a great tool for getting a clear picture of how much you are spending and how much will be left for a vehicle’s purchase and maintenance.
“The amount that’s left over is your disposable income but you can’t use that entire amount to pay for the car loan,” says Mahoney. “Budget for fuel, insurance, tyres, service costs and more – and remember that those costs can change through the year.”
It is also advisable to have leeway in a budget to accommodate changing fuel prices and unexpected service costs – not to mention a slaughtered rand!
‘AFFORDABILITY: BE REALISTIC’
Once disposable income has been calculated and all running costs budgeted for you should easily be able to arrive at an amount that can be afforded each month. However, the temptation to spend only R100 or R200 more might exist, especially if it could mean a slightly better car.
“Be realistic about what you can afford and don’t stray from that budget – it might not end up being worth it,” says Mahoney. “Rather buy a car that you can pay off easily and quickly. Three or four years down the line you’ll be able to trade-in that car and afford the model with all the bells and whistles.”
Once you’ve decided on a car and done all your budgeting look at how you’d like to structure your contract. A shorter finance term will mean higher monthly repayments but you’ll end up paying far less in interest fees. Additionally, you will be able to trade your vehicle sooner, while it’s worth is more on the used-vehicle market. WesBank’s Vehicle Payment and Insurance Calculator let’s you play around with all the variablest.
A longer finance term will mean lower monthly payments; remember, the maximum contract term is 72 months, so think what your needs will be in six years and whether you want a financial commitment for so long.
Paying a large deposit will also reduce monthly payments.
BALLOON PAYMENT? DEFINITELY NOT A GOOD IDEA
If absolutely necessary, consider a balloon payment; it’s like a deposit in reverse, paid at the end of the contract. This means that after 60 or 72 months of paying instalments you will still need to make a large payment – possibly as much as the trade-in value – which will take you right back to Square One.
“If you remember to save towards the balloon every month you’ll avoid the shock of a balloon payment,” says Mahoney. “A balloon can be used toreduce monthly instalments but should be considered only as a last resort and used wisely.”
Finally, there are many value-added products that buyers can use to get the best value for their money: insurance products that let you claim to repair paint chips and minor dents, or even tyres and wheels. They don’t replace comprehensive insurance policies, but rather supplement them, and avoid buyers having to claim from their insurance provider for minor issues.
Other value-added products include financial insurance. One example is the deposit protectors, which will refund a deposit in the event that the vehicle is stolen or written off in an accident; top-up cover, which will cover any financial shortfalls if an insurance provider’s payout does not cover the entire loan amount; retrenchment cover that can cover as many as nine vehicle instalments; a personal health policy to cover payments if you can’t work because of illness.
“Value-added products can bring some peace of mind to a vehicle purchase,” says Mahoney. “Cars are expensive but you can invest in a few safety nets to ensure that you don’t become financially constrained in tough times.”
Such as well the value of the rand plummets…