The dream of every teenager is to get wheels - but the wrong wheels can tie you down as surely as having your feet nailed to the ground.
The biggest mistakes people make in buying motor vehicles are:
- They buy the biggest and the best, saddling themselves with high debt.
- They buy a new car when they could save considerably buying a good second hand model.
- They replace their vehicles too quickly; most cars will last about eight years.
- They choose the wrong form of finance, with high interest rates and other add-on costs.
- They buy uneconomical vehicles with high running costs and expensive spare parts.
- They forget the more costly or more sporty a vehicle, the more they will pay in insurance.
- They add expensive accessories.
There are 10 steps to follow when buying a motor vehicle:
Step One: How much?
Work out how much you can afford to spend, including the running costs of the vehicle.
Step Two: Financing
If you are under 21, the banks will not allow you to borrow money without support and agreement from your parents. They are also reluctant to lend money for a car more than five years old.
Vehicle financing plans include:
Hire purchase:
A hire purchase, or HP, agreement is a loan, mainly from a bank but also increasingly from vehicle manufacturers and big dealers.
Basically:
- You are leasing (hiring) the vehicle until you have repaid the loan.
- If you stop paying the lender is entitled to reclaim the vehicle.
- You need a deposit of at least 20 percent.
- The maximum repayment period is 54 months.
Lease:
A lease arrangements is different from hire purchase in that you are actually only hiring the vehicle.
- Leasing is suitable for businesses and people with car allowances because you can claim some of the cost against business mileage.
- No deposit is required.
- The maximum lease period is five years.
- You can buy the vehicle at the end of the lease period expires by paying what is called "residual value".
Residual payment works like this:
- You leave an unpaid sum, called a residual or balloon payment, until the end of the contract period. Over five years it's anything between 20 and 35 percent of the new cost.
- In theory, the residual payment should be equal to the re-sale value so you can sell the vehicle at the end of the contract and owe nothing.
- Leasing is more expensive than hire purchase: a R200 000 vehicle at an interest rate of 15.5 percent over 60 months would cost you almost R14 000 more to lease and then pay the residual, than to buy with HP financing.
- The market value of the vehicle could be less than the residual value at the end of the contract if the vehicle is in poor condition.
- As a rule of thumb you can expect your vehicle to depreciate by 1% a month for the duration of your contract. If your contract term is 60 months, your car will depreciate by 60% over the period. This means you should not have a greater than 40% residual.
- You can opt for a buy-back contract with a motor dealer, who guarantees to buy back your vehicle for a certain value after a set time - provided you have not done more than a specified number of kilometres.
- You must make sure any insurance covers the entire value of your motor vehicle, including the residual payment.
Step Three: New or second-hand
Whether you can afford a new car depends on how much money you have; there's nothing wrong with a second hand as long as you check it out properly.
Step Four: Choosing your car
If you're buying a new car advance to Step Eight. If you are buying a second hand car go to Step Five.
Step Five: A second hand car
Get a book called the Auto Dealer's Digest, which prices all second cars. There is an upper price - at which the second hand car dealers normally sell a second hand car - and a lower price at which they buy them.
You can buy second-hand cars privately from someone else or through a second hand dealer. You'll probably get a better price in a private sale, but a sale through a dealer usually comes with some guarantee on the motor vehicle itself.
If you buy from a dealer make sure he's a member of the Retail Motor Industry, so if you have a complaint you can appeal to the Motor Industry Adjudicator.
Step Six: Final checks
Here are a few precautions to take before buying a second hand car:
- Don't pay anything until you are happy with the car.
- Check the service record book to ensure it's serviced regularly.
- The Automobile Association (AA) will give the car a thorough check over for a fee.
- Insist the current owner puts the car through the road worthiness check. You can't get the car licensed in your name without a Certificate of Roadworthiness (CoR).
- When test driving a car take it out on the freeway and see what happens at speed. Keep going for about half-an-hour so you can see if any odd noises develop or the engine starts overheating.
Give away signs of poor condition include puffs of smoke from the exhaust when the car starts, or when you change gear. Also look out for a rough feeling to the gears; a grey colour to the oil, and any jerkiness when the motor is running.
Wait a while after parking, then check under the car for oil and water leaks.
- Check the odometer. The lower the kilometres done the better; you can expect a distance of about 20 000km a year.
- Check the body for rust and previous collisions. Give-aways are slightly different colours on different parts, and body filler. To check for body filler, use a magnet on the body. Where it doesn't stick is a sure sign of body filler.
Rust shows up on window edges (look under the rubber), behind boot and door panels and at joints.
- Check you are not buying a "Code Three" vehicle - a car that's been scrapped and rebuilt.
Step Seven: Stolen vehicles
If you buy a stolen car and it is tracked down to you, the police will take it away from you and you will lose your money. To prevent being caught out:
- Ensure the ID book of a private seller tallies with the name and address of the registered owner.
- Check the engine and chassis numbers on the vehicle against the registration documents.
- If you have any doubt, check with the police or your local traffic department. They can access the National Traffic Information System (Natis), an online database that records ownership details of all registered vehicles. You can also call AA Autocheck on 0861 601 601.
- Make sure no money is owed on the car - check with the institution that financed the previous loan.
- Never pay for any vehicle in cash. Pay with a bank guaranteed cheque or a personal cheque made out to the seller.
Step Eight. Taking ownership
Get the car registered in your name as quickly as possible. You can get the necessary papers, which must be signed by the current owner and yourself, from the motor vehicle licensing department.
Step Nine: Guarantees and maintenance contracts
Carefully check what is guaranteed and what is not guaranteed. Maintenance contracts are sold by dealers to cover the on-going costs of maintaining your vehicle.
Step Ten: Insurance
It's important you have the car insured before you drive it out of the garage - you could have an accident on the first corner bend. You can get three types of insurance:
- Comprehensive insurance means your car, and anything or anyone else, is covered against any accident.
- Third party, fire and theft is really there for older second hand cars. Your car is insured if it is stolen or catches fire, and if you damage someone else's property or injure someone else.
Damage to your vehicle is not covered.
- Third Party Motor Vehicle Assurance is compulsory assurance that you pay without even knowing it every time you buy petrol; it covers anyone injured in an accident.
If you're under 25 you'll have high insurance premiums and a higher than normal excess; excess is the first part of a claim you pay if you have an accident.
Four tips on motor car insurance:
- Get the lowest premiums. Shop around by getting quotations from a number of insurance companies.
- Make sure that the value of the car is reduced every year when you renew your insurance.
- The cost of insurance will come down if you pay a higher excess; take into account how much you can afford to pay yourself.
- If you do not make an insurance claim you will build up a no claim bonus, which reduces your insurance premiums.