R599 a month. Really?

2014-02-16 14:00

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You may be intrigued by the cars frequently seen on our roads sporting advertisements boldly stating ‘from R599 a month, no deposit, no residual’. We’ve found out how this scheme works and the risks buried in the fine print

The cost of buying a new car has escalated rapidly over the past decade. Where you could once afford a decent car at a reasonable cost, it is now common to find people buying cars over an extended period with a residual value to boot.

Satinsky Group is the South African arm of the company running the “R599 a month, no deposit, no residual” scheme.

If you read the fine print, the advert on a Nissan Micra?1.2 Visia reads “from R1?199 a month” with no deposit, no residual. When you apply to buy a car, your application is sent to the banks and you then sign a contract for the full value of the car.

For example, the same Nissan Micra over 72 months with no deposit and no residual would cost you R2?620 a month at a retail price of R141?000.

The “discount” comes in when you sign an advertising agreement with the holding company, Blue Lakes Trading and Promotions, which is domiciled in Hong Kong. There are three different advertising agreements: earn while you own, earn while you drive and earn while you share.

If you choose to earn while you own, Blue Lakes agrees to pay you R570 a month, provided you drive a minimum of 500km a month. The advert on your vehicle will have a code, which must be SMSed to 35393.

The code is unique to your vehicle and every sale linked to your code earns you a commission of R3?000. If you do earn any commission from sales, the R570 minimum payment falls away.

So, the contract you sign with the bank commits you to meeting the full repayment and the advertised repayment of “R699 a month” is dependent on you receiving commission for sales.

Vladimir Dyulgerov, who bought his car through the scheme in November 2011, has set up his own website to drive sales using his code. He says he has earned as much as R70?000 to R108?000 a month.

Just like any other hire-purchase agreement for a car, you still have to be assessed for credit affordability and the contract is granted at an interest rate of prime plus 2% or 11%.

Colin from Durban signed up for a slightly different arrangement. He bought a Tata Indica?1.4 for R107?000. The total repayment on the car is about R2?080 a month, but Colin in effect only pays R800 a month.

He drives a stipulated 2?000km a month and has to submit two photos of his car every month – one of the advertising on the car and one of his odometer.

“If I drive less than 2?000km a month, I get a pro rata payment. I’ve had the car for about two years and have had absolutely no problems in that time. The company hasn’t missed a payment in the two-year period. It also really works for me because the fuel price is continuing to climb and this is an economical car which is now very affordable,” he says.

Colin is in a position where he can afford to pay the full repayment on his car if Blue Lakes does not pay him the advertising incentive.

“I think the plan I am on really works. All you have to do is meet the mileage requirements. My neighbour, on the other hand, opted for the R570 minimum payment and R3?000 commission per sale generated from her code. But in six months, she hasn’t seen a single sale or commission payment,” he says.

Complaints

Consumer website Hellopeter.com is littered with complaints about the scheme. One complainant posted he bought a Chery?QQ advertised at R499 a month.

When the car was delivered, he signed a contract to “earn while you drive” since he drives more than 2?000km a month. But the Satinsky Group representative left with all the signed papers and the complainant received only unsigned copies of the contract.

“I was not sure because I know what I have. I told the sales person several times I don’t want to pay more than the amount as per my signed contract. Needless to say, three months later, no car was sold on my number and now I have to pay R2?100 a month on my Chery QQ.”

According to Barnard Jooste, a representative of the Satinsky Group, the contract given to clients isn’t a signed copy, but he says: “We do encourage our clients to request a signed copy from their financial institution.”

Other complaints on Hellopeter.com against the Satinsky Group are headlined “No help at all”, “Fed up”, “Looking to start a class action lawsuit”, “Worst company” and “Short paid on refund”.

The fine print on the contract with Blue Lakes Trading and Promotions states:

»?The agreement is at an interest rate of prime plus 2% or 11%. You might get a better interest rate if you apply to the bank directly.

»?While you drive the car, you are responsible for insurance. In the case of an accident, all commission payments and even the R570 a month minimum payment is suspended until your car is back on the road.

»?You accept responsibility for any liability arising from advertising on your car.

»?The company has the right to terminate the agreement at any time if you fail to meet the fine print conditions, leaving you responsible for full monthly repayments to your bank.

»?You have to send in photos of your car every month to prove the advertising is still in place, the car is in good condition and to verify the odometer readings to prove distance travelled. If the car is damaged in any way, Blue Lakes can terminate the advertising contract immediately.

»?Each year, you will receive a notice from the company stating the full commission you have earned for the year. However, it is your responsibility to declare any earnings to the SA Revenue Service and you are responsible for paying the tax due.

»?If you want to terminate the advertising agreement, you have to give the company 24-hour notice by prepaid registered post or delivered by hand. (It’s difficult to see how this is practical given the company is domiciled in Hong Kong.)

»?If you receive bank approval and take delivery of the car but then choose to cancel the sale, the Satinsky Group will claim the cost of depreciation of the car and costs incurred for sourcing, delivery and administration.

FACTS

Health warning!

If you opt to buy a car through this scheme, you should first make sure that you are able to meet the full bank repayments on your own merit.

Use the money generated from advertising commission to accelerate the payments on your car so that it is fully paid off over a shorter period. If you are relying on the money from the advertising commission to be able to afford the car, you are taking a big risk. If the Satinsky Group is agreeing upfront to subside each car by R570 a month over 72 months, that works out to R41?040.

They would have to make that much profit on each sale just to break even before the advertising commission even comes into play. So, each car has to keep generating sales to keep the business afloat, which is not entirely unlike a pyramid scheme.

If sales figures drop and the company is unable to meet the advertising commitment, you will still be responsible for the full payment due to the bank.

You will also be unable to lodge a complaint with the National Credit Regulator as your agreement with the Satinsky Group is an advertising agreement and does not fall under the jurisdiction of the National Credit Act.

FACTS

Tips for buying a car

1?A balloon payment deferred to the end of your hire-purchase agreement can make your car instalments more affordable.

But this should be a red flag telling you that you can’t afford the car. At the end of the loan term, instead of having paid off the car, you are still responsible for the balloon payment, which is usually between 30% and 35%. You then have the choice of refinancing your car or trading it in.

A better option is to save for a deposit and purchase a car over 54 to 60 months at most.

2?When you buy a car, you have to pay an initiation fee of R1?140. If you pay this upfront, it reduces the interest charged.

3?Shop around. Different dealerships have different deals. They may be trying to get rid of excess stock before a new model is launched. But make sure you read the fine print on any “special deal”. Demos are considered the best value for money as they still carry a maintenance plan and don’t depreciate at the rate of a brand-new car.

4?Negotiate with the dealership. You can ask for the “delivery fee” to be waived and get the car registered yourself.

5?If you are buying a car that is not on a maintenance plan and the salesman offers to sell you a plan, find out from the workshop what the average cost of your next three services will be. Weigh that against the cost of the maintenance plan.

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