First car a tough choice

2016-01-20 06:00

ARE you looking into buying your first car? Here are a few things you need to know, courtesy of WesBank:

Do not get into a lot of debt right now

The time will come when you can comfortably afford the repayments for an expensive house and car. If you have just left university and started your first job, the best advice is to save every penny you can to set yourself up for the future.

Pay off your first car

There is always the temptation to trade in your car every few years. However, if you are in your first car, pay it off and drive it until it needs to be replaced. The sooner you pay it off, the sooner you are without debt. It puts you in a position where you can use your free cash to save or invest. Even if you intend on replacing it, a paid-up car will be more useful come trade-in time. Any money the dealer offers for your old car can be used towards the purchase of your new car.

Remember all the costs

In the excitement of getting a new car it might be easy to forget about other essential costs. Have you looked at the fuel consumption of the new car, and included fuel costs in your monthly budget? Remember insurance and saving money for maintenance.

Be patient

Try to avoid balloon payments, and choose the shortest possible term for the loan.

“Longer finance periods and large balloon payments will bring down monthly payments, but there are definite disadvantages,” says Rudolf Mahoney, head of brand and communications at WesBank.

“Buyers end up spending a lot more on the interest over the longer period of the loan, and a balloon payment, also subject to interest, could attract even more charges should a buyer decide to refinance.”

For instalment sale agreements, the following advice applies:

  • D before B except if it is C: Rather put down a big deposit before looking at a balloon payment unless it is critical.
  • When choosing the payment term, the lower the term, the better. This results in less paid on interest.
  • A balloon payment will require you to pay a lump sum at the end of the contract period. This might require a new loan, thus extending the amount of time you are paying interest on the car. Or you might have to sell the car in order to settle the balloon payment – starting the debt cycle all over again.

Buy for the future

Where will you be five years from now? A zippy hatchback might sound great now, but will you need more space when you start a family? If so, just remember to not spend too much right now, so that when the time comes to trade in you are not left in a position where you still owe the bank more money than the car is worth.

Budget carefully

The trick to budgeting is to be honest with yourself. Take your salary, after taxes, and deduct every expense you can think of. The amount you are left with will be disposable income, and you should only use about two thirds of that as your car-buying budget. This amount needs to cover the instalment, insurance, petrol and running costs.

Applying is easy

After doing your research, applying for finance is as simple as visiting the dealership. The finance and insurance representative is also able to give you sound advice.

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