CAPE TOWN, South Africa – For many people buying a car initially involves colour, style of wheels, and equipment options. The real cost doesn’t hit home until they do the sums and find they can’t afford the vehicle of their dreams.
So, slow down… there is, according to one of the major banks, a way to get your finance application through while keeping your domestic budget in good health.
WesBank’s Rudolf Mahoney told The Corner: “Buying a car is not just a New Year’s resolution – it’s a five- or six-year commitment so start with a budget and consider all the costs associated with owning a car.”
Start with a budget
First, total all current expenses – every expense, no matter how small, that you have to meet every month then subtract the total from your monthly income streams after tax. Then subtract further the costs of petrol over the kilometres you might be covering over a month – start with perhaps eight litres/100km.
Your finance company will require the car to be insured.
Using the WesBank Affordability Calculator will help with the initial total.
Then look at some of the larger websites – cars.co.za is one of the best – and compare car prices to find a deal that suits your budget.
On average, a young professional who buys a first car at age 25 and replaces it every three years or so, will have financed eight cars in their car-buying lifespan. First-time car buyers need to decide and spend wisely.
Knowing all the costs
Budget drawn up? OK. Now determine how much you are willing to spend on a car and remember the total monthly cost will require the monthly instalment, fuel spend, road tolls, licensing fees, maintenance, and insurance premiums.
You might consider a vehicle with an economical engine (and remember, even a late-model one-litre car will easily keep up with traffic and be comfortable at the national speed limit) to help keep fuel costs in check. And putting aside perhaps R400 a month will be better than suddenly having to find several thousand rands for a major service.
Try to balance the costs of an affordable purchase with high service costs and fuel burn against a more expensive vehicle sold with a maintenance plan and an efficient engine.
Account for inflation
Fuel costs can add up quickly and its price is likely to continue to rise through 2017. Should the fuel price increase by R1 or R2/litre, WesBank warns, your monthly fuel bill could increase R200-R400 if you fill up four times a month.
General inflation will also reduce your disposable income each year.
All that done, it’s time to consider the length of your finance deal… a shorter finance term will mean larger monthly repayments but reduce bank interest. Additionally, you will be able to trade your vehicle in sooner and the best resale value. WesBank’s Vehicle Payment and Insurance Calculator lets you play around with all the variables.
The maximum contract term is 72 months. And remember, the bigger the deposit the lower the payments.
Balloon payment? Be cautious…
If absolutely necessary, you can consider using a balloon payment. This is a large amount to be paid in one hit at the end of the contract. Sometimes it is possible to refinance the car at that point – indeed, some dealers (The Corner points out) will push this kind of deal because they score more on commission from the finance house.).
Mahoney warns: “A balloon can be used to help reduce monthly instalments but should be considered as a last resort.”