It is natural to think about the joys of starting the New Year in your dream car when your bank account is filled with an end-of-year bonus. However, is it advisable to buy a brand new or pre-owned car during the festive season? Yes, as long as you carefully consider all the options available.
“The major benefit of buying a car just before the end of the year is that there are bargains to be had – especially if you are buying a new vehicle,” says Nicholas Nkosi, Head of Vehicle and Asset Finance – Personal Markets at Standard Bank. “In addition, you could get in ahead of car price increases that are expected to be higher than the inflation rate during 2015.”
“Many manufacturers have already announced their intentions to bring new 2015 ‘face-lifted models’ into the local market. For dealers, this means that 2014 models that are still on the floor have lost some value, as many buyers would prefer to wait for the 2015 models before buying.”
“If you are happy to drive a brand new vehicle that may not have the ‘bells and whistles’ that could be featured on the 2015 models, you will find most dealers happy to offer incentives for your purchase. If you can locate a demo model with a low mileage, you could do even better.”
Also to be considered, says Mr Nkosi, are the announcements from various manufacturers that the dropping value of the rand, rising inflation and stable interest rates that have characterised the market for several years are about to change. “Car prices are set to increase significantly in 2015, so buying ahead of the rises could mean significant savings in monthly instalments and interest payments.”
However, he adds, buying a vehicle should only come after the necessary research and implications on your personal budget have been considered. “After a house, a car is the most important purchase made by most people. Making sure that it is affordable is important if you are to be happy driving the car for the next few years,” says Mr Nkosi.
So, before taking the December plunge and buying your dream car consider:
• The financial implications. Be sure that your budget can not only cope with instalment payments, but with the costs of insurance, maintenance and ‘add-ons’ such as warranties and service or maintenance plans that are not part of the purchase price.
It is great to own the car of your dreams, but maintaining it can prove to be quite costly. For example, although the price tag on an SUV may be appealing, replacing all four tyres on an SUV can easily cost between R 10 000 and R 20 000.
• The cost of insurance rises with a car’s price tag. Trying to reduce insurance premiums by opting for a higher excess payment could backfire if you have an accident and have to pay a massive bill before your car can be repaired.
• If you can, always pay as large a deposit as you can on a car. The bigger the deposit, the less you will have to pay back over the term of the loan.
• Think about the possibility of interest rates increasing while you are paying off the vehicle. This could mean having to pay more for the car every month. If your bank offers you the opportunity to fix your rate, consider this option. It will cost you up to two percent above the going rate, but will provide you with financial certainty.
• Consider leasing a vehicle, with the option of retaining ownership at the end of the contract. There are various types of lease options available, including full maintenance leasing. While this option may cost you more than buying, it covers all costs including servicing, tyres and insurance for a set monthly fee, for the duration of the contract.
• Consider your repayment period carefully. Banks now offer flexible monthly repayment terms so that cars can be financed for up to six-years (72 months). Many people opt for this to make car payments more affordable, as the longer term reduces the monthly expense. However, the longer the finance period, the longer it will take for the settlement value to reach break-even point with the asset value, due to depreciation.
The difference between instalments over payment periods can often be fairly low. It is advisable to ask the dealer or bank to calculate the costs of various repayment options. You could save yourself months of repayments and interest costs by investigating this option thoroughly.
“If the sums do not add up satisfactorily, consider buying a pre-owned vehicle or downsizing your purchase.”
“A car’s value usually depreciates fastest during its first two years on the road. You can save thousands in capital and interest by buying a low mileage car that is still in good condition. You will also benefit through extended maintenance or service plans,” says Mr Nkosi.
Furthermore, opting for a diesel vehicle instead of petrol will result in better fuel consumption, which is something to consider given the escalating fuel costs.
“When considering buying a new or pre-owned vehicle, always keep one thing in mind; it is better to compromise on luxury than having a car that adds to your financial woes,” concludes Mr Nkosi.
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