South Africans looking to buy new cars may soon be faced with escalating vehicle prices and additional interest rate increases – a double blow that could see many looking to the pre-owned car market in the near future, says Standard Bank.
But, says Glenn Stead, Head of Products for Vehicle and Asset Finance at Standard Bank, instead of considering pre-owned cars negatively, choosing this option could be one of the wisest financial decisions many people could make.
“There is no doubt that the days of low interest rates and great offers from manufacturers, who have historically competed to sell new vehicles in a buyer’s market, are drawing to an end. The low value of the rand is placing pressure on the cost of imported vehicles and parts. Locally, interest rates are on the rise as The South African Reserve Bank uses this mechanism to keep inflation under control.
“Inevitably, this means an increased sticker price on new vehicles, and as such motorists are advised to consider buying pre-owned vehicles,” says Mr Stead.
The benefits of buying a pre-owned vehicle include:
- Letting someone else take the ‘depreciation hit’ for you. What does this mean in simple consumer terms?
- The chance to save significantly on repayment and interest costs.
- The ability to enjoy the benefits from existing service and maintenance plans.
- Freedom to consider various purchase options and being able to shop around, not just for specific makes and models, but also for the best value for money.
The process of vehicle depreciation begins the moment a new car is driven off the showroom floor. By the time it is one year old, the value has generally dropped by up to 30%. After the first year the depreciation rate slows to about 10% per year.
“Translating this into financial benefits means that you can buy an almost-new car or a ‘demo model’ with low kilometres at a vastly reduced price. Your monthly repayment is considerably lower and your interest costs will be reduced,” says Mr Stead.
Most new cars are sold with service or maintenance plans. Options available vary, but some plans can run up to 120 000km or five years (depending which milestone is reached first).
“This is a wonderful benefit if you are buying a pre-owned vehicle. The first owner could have paid R40 000 or more for a service or maintenance scheme. You get the benefits of the remainder of the contract. Best of all, you can buy a car from a dealer and have access to the car’s service history – a must have when buying pre-owned,” says Mr Stead.
The moment you decide to buy a pre-owned vehicle, different types of purchase options also open up. You can think about:
- Buying a repossessed vehicle direct from a bank’s facilities.
- Buying at an auction. We need to include a point here that customers must ensure that the auctioneer they want to buy the vehicle from is one that their bank considers reputable and will provide financing for.
- Contacting sources linked to rental car companies where vehicles are sold direct to the public.
“Repossessed vehicles can be bought directly from banks in some cases, or through auction houses.
We do advise, however, that you take the time to find out about the terms of sale, up-front payments required, as well as other conditions before taking part in an auction. Standard Bank assists purchasers who want to go to auction sales by approving purchase limits and confirming this in writing for the auctioneer. This makes the process as painless as possible,” says Mr Stead.
Many car rental companies have retail outlets at which they sell their cars after a pre-determined time or mileage limit has been met. The advantage of these vehicles is that they are well maintained.
“A buyer choosing this option can benefit financially if a hire company has made major purchases of a particular model and decides to release most of them on the market. Because there are so many available, prices can be cut to promote sales,” says Mr Stead.
There are further considerations to bear in mind when opting for a pre-owned car:
- It is more difficult to finance a car that is more than 10-years old. Standard Bank, however, does offer finance assistance with classic cars that meet certain criteria.
- Banks will not finance vehicles that have been stolen and recovered.
- Finance will not be approved for cars that have been in accidents &written-off by insurance companies and then rebuilt. This is because of the risk of poor workmanship and potential future failure of these vehicles.
Buying a car from a private owner and having it financed is also possible. The deal will take longer, but the new owner will ultimately benefit because the bank will:
- Scrutinise the history of the vehicle and make sure that it can be legitimately sold.
- Will insist that a thorough mechanical and physical vetting of the vehicle takes place to ensure that its engine and drive chain are mechanically sound, and that it has not been involved in any major accidents.
“With many cars being sold with remaining warranties and service contracts, and with the thorough vetting process that takes place, the old belief that buying pre-owned means buying someone else’s problems does not really apply to today’s market.
“Quite simply, buying pre-owned in today’s turbulent economic times could be the best decision you can make,” says Mr Stead.