Give yourself a New Year present by starting the depreciation of your car only in January
If you’re in the market for a new car right now, think carefully about when you drive it off the dealer floor.
Glenn Stead, Standard Bank head of Personal Markets for vehicle and asset finance, points out that you can give yourself a financial advantage if you have the self-discipline to leave the car at the dealership until January so that it can be registered as a 2013 model. “The value of a vehicle starts to depreciate from the moment you drive it off the dealer’s floor. As the car must be registered in your name in order for you to do that, depreciation is calculated from the date of registration. This means if you register the vehicle in January 2013 instead of December 2012, you gain a year’s worth of resale value. That’s a substantial gain.”
Mr Stead says however that the same isn’t necessarily true for a used car, as depreciation is calculated on a monthly basis from the date of registration by the original owner. “By registering the car in your own name in January, you will save yourself only around 2% in depreciation value for the month of December.
“When it comes to used cars, there may be a small advantage to be gained on the actual purchase price if you buy it now rather than next year, because dealers could choose to notch up the prices in January. But you gain no financial advantage from the date on which you register it.”
Mr Stead warns against buying any vehicle on a contract that promises several months’ payment holiday. “Buying now but starting to pay only in, say, April or May next year, actually costs you a lot of money. Vehicle purchase contracts are very specific payment plans. They are not loans.
“The payment period for a loan is usually flexible, and that affects the amount of interest paid. In a payment plan however, the interest is calculated up front on the full purchase price. It is then divided over the contract term. From the outset, you are liable for all the interest and the whole capital amount for the entire duration.
“A four month payment holiday on a 60 month vehicle payment contract therefore simply means that the four months of capital and interest payments you skip are added back into the payment plan. Your repayments for the remaining 56 months of the contract therefore increase and instead of saving money, you end up paying considerably more on a monthly basis.”
However, he notes that you can make arrangements with your vehicle asset financier to structure repayments in such a way that you can pay back in 11 months what you would have paid in a 12-month period of the contract.
“This adds very little to your monthly payments and gives you a bit of leeway in tight months, such as January, when the extra costs of school fees and uniforms may put a strain on our wallets,” Mr Stead says.
“However, you do need to make this arrangement with us from the start of your contract. Our systems are not set up to recognise extra money that you might choose to pay into the contract on an ad hoc basis throughout the year. That money will simply sit in a suspense account and not be deducted from your contract.
“Overall, when it comes to vehicle finance, the best way to save yourself money is by being patient and disciplined.”