Johannesburg - Traditionally, South Africans have leaned towards bank financing when buying a vehicle but there are now more options to explore.
Leasing, for example, has gained popularity over recent years - but you need to do your homework and know exactly what you are getting yourself into.
DO YOUR HOMEWORK
Chairman of the Motor Industry Workshop Association chairman Les McMaster said: “Almost a third of motorists in the United States are leasing their cars, but the concept is still relatively new here, although it has advantages for South Africans in light of rising interest rates, fuel hikes and a shaky rand.”
The big difference between a lease and an instalment agreement, he said, is that at the end of a lease agreement you won’t own the car - you’ve been hiring it and it has to go back, unless you then buy it for the residual value.
“Generally, buying a car, paying it off and then keeping it for many years, remains the least expensive way to go,” he said. “Despite the fact that vehicles depreciate over time, they do retain some value that you can use towards buying another car.
“If you lease a vehicle, you only drive it for a fixed period and your monthly payments go towards paying for depreciation, not buying it. Lease agreements are also for shorter terms, and come with restrictions on how many kilometres you can do during the lease period.”
McMaster advised prospective buyers to do their homework first, research the options and always be aware of the fine print.
“Bank finance is expensive because a big chunk of the monthly instalment goes towards interest payments,” he said. “Banks also want to know that you have a spotless credit history and that you can afford the monthly payments on the car.
“Don’t base your affordability just on the on the repayments - with the current price of petrol, insurance and servicing, the monthly instalment makes up less than half the actual cost of running the car.
“There are also lots of value-added products, such as service and maintenance plans (for used cars), dent and scratch protection, insurance shortfall cover and life, disability and unemployment cover, that can be built into the agreement so you don’t have to pay for them up front - but make sure you know how how much they are going to push up the instalment and whether you can afford the extra.
“Most importantly, keep in mind what you want to use the vehicle for, consider the average distances you travel - and allow for increases in the price of fuel!”
WESBANKS’S TOP FIVE DOs AND DON’TS FOR CAR BUYERS
Draw up a budget so you know howe much you can afford to spend.
Leave enough spare cash in your budget to cope with rising costs such as fuel and interest rates.
Take the time to read and understand your finance contract.
Contact the bank if you get into financial difficulties and can’t make the payments.
Make sure you always have comprehensive insurance, as well as top-up insurance to cover your repayments. If you don’t, and it gets stolen or written off, you’ll wind up paying monthly installments on a car you don’t have.
DON‘T:
Overextend your budget.
Give the bank with false information about your affordability.
Cancel your insurance when you’re in a financial bind.
Rely on a big balloon payment to make your instalments more affordable.
Forget to include all the costs in your transport budget: petrol, insurance and maintenance.
YOUR OPTIONS: FINANCE AT A GLANCE
Instalment sale:
You take delivery of a car and pay for it over an agreed period.
You become the owner once you’ve made the final payment.
You can opt for a balloon payment, which reduces the monthly payments.
Lease:
At the end of the agreed period you can choose to buy the car or return it to the bank.
You can drive a brand new car every two to four years.
Lease payments are tax deductible for business owners who use the vehicle to generate income.
The bigger the balloon payment, the lower the monthly payments - which is fine in the beginning but not so great if you plan on keeping the car at the end of the agreement.
Rental:
The buyer gets to use the car full-time, rather than buying it.
To reduce monthly payments, the customer can negotiate a residual value.