It is the beginning of the year and many aspiring car buyers will start looking for their dream car. However, it would be better if you didn’t simply waltz into a dealership to buy the first car that tickles your fancy, but rather invest some time in researching what you can afford, what is on offer and whether it is a good time to buy now or wait. Do your research and understand your financing options car1According to Sydney Soundy, head of vehicle and asset finance at Standard Bank, buying a car is often the second largest purchase people make. “Taking the time to explore the options available, doing the calculations and then taking a decision will be time well spent,” he says. Chris de Kock, executive head of sales and marketing at WesBank, agrees. “Especially in the current economy, buying a car should be a thoroughly researched and practical endeavour,” he says. A good place to start is to actually understand your financing options. In an ideal world, buying cars for cash would be the way to go. But, says Soundy, given that the price of cars can quickly be affected by a change in the value of the rand, the potential buyer must weigh up whether saving for the full purchase price is practical. “The most viable option is probably to put aside the equivalent monthly repayment for your car for several months and then use this as a deposit,” Soundy says. For the rest you need to understand the finance products out there. With an instalment sale agreement the car (asset) is in your name and owned by you, but the bank has title to the asset until you extinguish that title with the final instalment. With a lease agreement you enjoy the use of the car, with the option of retain ownership at the end of the contract. According to Absa’s vehicle finance section on its website, this type of agreement usually means lower monthly repayments, since you are not buying the entire vehicle, only the part of its value that you ‘use up’ during the lease period. With a rental agreement, similar to the lease agreement, the ownership of the car is never transferred to you during the contract period and VAT is not capitalised up front, but paid on every instalment. Most South Africans, however, don’t consider renting as an option, even though it is the option preferred in Europe and other major markets, Soundy says. Although you might prefer the concept of a tangible asset, it might be time to make a paradigm shift as a car depreciates in value at a rapid rate – around 15% annually, De Kock estimates. “After five years the vehicle is worth only a fraction of its original value,” Soundy highlights. Not a very good asset to own indeed. If the credit act says I can pay over 72 months, why not? cars3Before the introduction of the National Credit Act WesBank’s average contract period was 48 months. Now it is 68 months and the percentage of clients who opt for the maximum 72 months is above 80%, says De Kock. You think the car is more affordable because your monthly repayments are less, but the longer the period over which the car is financed, the longer it will take for the settlement value to reach break-even point with the asset value, due to depreciation. Thus it will take longer before you can trade in your car. “When you finance your vehicle over 72 months that break-even point is closer to the end of year four, while a lot of people want to trade in their cars after three years,” he says.
Posted on: Wed, 12 Mar 2014 07:54:33 +0000
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