Car buyers need to be wise

2016-01-13 06:00

MANY car buyers have delayed their car purchases to register it in the new year.

This is not uncommon, but does have its drawbacks. Often a car purchased in January will have been subject to a price increase, meaning your delay could hit you where it hurts most – your pocket.

It may also require careful budgeting to ensure you can keep up with the monthly instalments.

WesBank has excellent advice for starting your new year’s budget on the right note.

“Buying a car is not just a New Year’s resolution, it’s a five- or six-year-long commitment,” said Rudolf Mahoney, head of brand and communication at WesBank.

Start with a budget

Compile a list of all current expenses and income. Shop around and compare car prices to find a sensible and affordable car that fits within your budget.

The first car you buy and the way you manage your funds, shape your financial future and determine whether you will be stuck in a cycle of debt till you retire.

Buyers should take note of every amount they have to pay and subtract those costs from their total income. The WesBank Affordability Calculator is a great tool for doing that, and will give consumers a clear idea of how much they are already spending, as well as how much will be left for purchasing and maintaining a vehicle.

“The amount that’s left over is your disposable income. But you can’t use that entire amount to pay for the car loan,” said Mahoney.

“Budget for fuel, insurance, tyres, service costs and more – and remember that those costs can change throughout the year.”

Vehicle running costs need to be accommodated in a buyer’s budget.

Don’t break your budget

Once disposable income has been calculated, and all running costs budgeted for, buyers should be able to arrive at an amount that they can comfortably afford to pay on a car loan, each month.

However, the temptation to spend just R100 or R200 more might exist, especially if it could get them into a slightly better car.

“Be realistic about what you can afford and don’t stray from that budget – it might not end up being worth it,” said Mahoney.

“Rather buy a car that you can pay off easily and quickly. Three or four years down the line you’ll be able to trade that car in and really afford the model you want.”

Structure your contract

Once you have decided on a car and have done all your budgeting homework, look at how you would like to structure your contract.

A shorter finance term will mean higher monthly repayments, but you will end up paying far less in interest fees. WesBank’s Vehicle Payment and Insurance calculator lets you play around with all the variables so that you can structure your contract. A longer finance term can help buyers who want lower payments and less pressure on their monthly budgets. The maximum contract term is 72 months.

Think ahead of what your needs will be in six years, and whether you want a financial commitment for that long.

Paying a large deposit will also assist in reducing the monthly payments. A deposit is essentially a large initial payment, and lowers the amount of money you will need to borrow from the bank.

Borrowing less money also means paying less overall interest.

If absolutely necessary, buyers can also consider using a balloon payment. This is a large amount, like a deposit, but only paid at the end of the contract. This means after 60 or 72 months of paying instalments, you will still need to make a large payment. “A balloon can be used to help lower monthly instalments, but they should be considered as a last resort and used wisely.”

Adding some value

Consider value-added products, such as insurance products that let you claim to repair paint chips and minor dents, or even tyres and wheels. Other value-added products include financial insurance. One example is the deposit protectors, which will refund a deposit amount in the event that the vehicle is stolen or written off in an accident; top-up cover, which will cover any financial shortfalls if an insurance provider’s payout does not cover the entire loan amount; retrenchment cover, which can cover your budget if you get retrenched by paying for up to nine vehicle instalments; and a personal health policy, which can take care of your finances when the unforeseen happens. “Value-added products can bring some peace-of-mind to a car purchase,” said Mahoney.

“Cars are expensive, so you can invest in a few safety nets to ensure that you don’t become financially constrained in tough times.”

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