One of the greatest things about starting your first job is knowing that you can buy freedom – the independence that comes from having your own car and saying goodbye to bus timetables and crowded taxis. Best of all it’s a purchase that will do wonders for your social life.
But, as freedom beckons, there are still some very important practical things to consider. Amongst them is the ‘Big M’ – the money you need to get going. Des Fenner, General Manager of Datsun South Africa, says that doing your homework is the best way to find a finance solution that best suits you.
“There are many ways of paying for a car and it is best to know about all the options so that you make an informed decision. Being young doesn’t mean that you can’t be a savvy buyer who is ready to take advantage of the best of what is on offer. Do your homework before handing over wads of cash and your first car should be a joy to own and not a financial liability.”
The place to start, says Mr Fenner, is to research affordability.
“By comparing payment periods or terms, size of instalments, options like balloon and residual payments, and contracts that offer insurance and service contracts as part of the package, unpleasant surprises can be avoided,” he says.
Tapping a calculator’s keys for a few minutes can be very revealing. If you take a base cost of R150 000 as an example, even though a brand new Datsun GO comes at a cost lower than this, and work out repayment costs for different periods, the figures calculated can provide a clear indication of monthly repayment costs.
“What may immediately strike you is that there is very little difference between paying for a vehicle over 60 months rather than 72 months (the maximum period offered under South African law). The savings, however, can be significant.”
For example: a car bought for R150 000 with no deposit will cost about R3 300 a month over 60 months, if it is purchased at an interest rate of 10.5%. Bought over 72 months, the payment drops to about R2 900 – the difference is only R400 a month. The longer term is appealing when you look at your monthly payments, but there are other factors to think about.
“The payments over 72 months may appear to be the most affordable option, but when you look at the full cost of the overall contract, you will find that the total cost you will pay comes in at around R208 500. If you pay the car off over 60 months the total cost will be about R198 550.
“Paying off the same car at the lower monthly payment over 72 months will cost around R10 000 more in the long run.”
“If you can afford a deposit, the best option is to pay the money in. The benefits are felt best if the deposit is 10% or more of the car’s purchase price. So, to reduce your monthly repayments and save interest, putting down a cash deposit is the way to go,” says Mr Fenner.
Using the R150 000 benchmark again, with a 10% deposit over a 60 month repayment period, the car would cost around R2 990 a month. Over 72 months the cost will be about R2 620. Savings with a deposit and opting for 60 months would mean saving close to R9 200 over the full term.
When buying a car, it is easy to be tempted by the sticker price, and what you may think is financially achievable. There are, however, some other important items that you should think about first, including:
• Budgeting for maintenance and insurance. Comprehensive insurance is compulsory when a car is financed by the bank. The insurance premiums can be reduced by raising the excess payment that has to be paid in the event of a claim. This is fine, as long as you are able to afford a higher excess payment. If the excess is too high you could find yourself unable to pay for repairs to your vehicle.
• Options like balloon payments and residuals should be carefully examined. Basically, if you trade in your car when its value is still high, the balloon and residual payments can be met. If a vehicle is sold with a residual value, this means that the owner will have to pay the defined residual value, or what a seller (dealer) could expect to get for the vehicle at the end of the loan’s term.
Residuals can be expressed in rand or percentage values. And there are usually conditions attached – the most common being that a vehicle cannot exceed a set annual mileage. Other sticking points are usually related to the resale value being eroded by accident damage, poor interior condition or mechanical defects.
• Investigate service and full maintenance plans. Read these carefully and weigh up the costs and advantages of each. Some service plans offer reduced benefits as a car’s kilometres climb. Maintenance plans can offer more benefits (at a higher cost) than service plans, but can give you greater peace of mind. Expensive surprises should be avoided. Finding out that brake pads or other parts are not part of the service plan could make a unexpected dent in your budget.
• Another option worth looking into is comprehensive purchase plans that include service costs, insurance, roadside assistance and other benefits at a single monthly cost. Especially designed for young first time car buyers, the Datsun Allin1GO plan opens up financing options for those who are looking for a one-payment-per month option, over 72 months, without paying a deposit.
“There are many options to weigh up when it comes to buying your first new car. Look things over carefully, weigh up the alternatives and then make a decision. It may slightly delay the process of driving away in your own car, but freedom without worries is worth waiting for,” says Mr Fenner.