11 November 2013: “For most people, buying a car is one of the largest and most important purchases of their lives,” says Rudolf Mahoney, Head of Research at WesBank, South Africa’s leading asset-based financial solutions provider. “A lot of money is at stake and a lot can go wrong, so it is critical that people follow a sound and thorough process when buying a car.”
He says that first and foremost, one should always buy from a bank approved dealership. “You will be assured of the best possible service and this will also help to safeguard you from buying the proverbial ‘lemon’. It is also very important to thoroughly research the vehicle that you want to buy, especially in the current economy.”
Mahoney continues, “Before purchasing a vehicle, make sure that it is affordable and you are able to comfortably repay the instalment of the loan. Consider your credit profile at the credit bureaux as well. In terms of the National Credit Act, all credit providers must report the status of all accounts to the credit bureaux. It is therefore extremely important for any credit active individual to pay all accounts on time every month. By managing your credit accounts in this way, you help to ensure any future credit endeavours run smoothly.
“Perhaps the most practical advice is making sure that the car you intend buying is ‘fit for purpose’ – in other words, making sure that the car you buy suits the practical use that your vehicle is intended for as well as your monthly budget. For example, if you are on a tight budget, it may be important to pay attention to the average mileage you travel per month and the car’s fuel efficiency, against the ever-escalating cost of fuel.”
He says that the Finance and Insurance (F&I) Sspecialist on the dealer floor is there to assist people and help them make the most informed decision. The F&I Specialist is licensed and authorised according to regulatory compliance through the Financial Advisory & Intermediary Services Act (FAIS), as well as the National Credit Act. In this regard, they are registered and appointed representatives and therefore the consumer is assured that he will get the best advice.
Mahoney’s other practical tips include the following:
1) Total cost of ownership: You should not base your affordability calculation only on the repayment of the instalment. WesBank’s research has shown that in the current market condition, the actual monthly instalment of an entry level car accounts for less than 50% of the total cost of ownership. Prospective buyers should also budget for fuel, maintenance and insurance before deciding to buy a new car.
2) Buying a new or used car? A used car appears cheaper than the comparable new car but over the long term the cost of maintaining a used car will add up. In contrast, most new cars come with maintenance or service plans. Having a maintenance plan also offers peace of mind that you won’t have any out-of-budget expenses to maintain the car. Depending on where you buy your pre-owned vehicle, you can have the option of purchasing a maintenance or service plan.
3) Paying a deposit: Paying a deposit results in a smaller monthly instalment and also allows you to finance the car over a shorter period. This means that if you so choose, you can trade the car in sooner.
4) The repayment period: Choosing a longer period reduces the monthly instalment and this may initially appear attractive, but it accrues more interest. In addition, the longer the period over which the car is financed, the longer it will take for the settlement value to reach break-even point with the asset value because of depreciation. In short, this means that it will take longer before you can trade in your car.
5) A balloon payment or not? A balloon payment is an inflated final instalment which is agreed upon up-front. It allows you to pay reduced monthly instalments but results in the previously mentioned break-even point to be significantly extended. We also find that customers sometimes tend to forget about this inflated amount at the end of the contract, which can then turn into a nasty surprise.
6) Fixed or linked interest rate: Usually when interest rates are low, most customers opt to use a fixed interest rate, which sets the rate for the duration of the contract. When interest rates are high, most customers opt for linked interest rates – meaning that the rate of interest repaid on the vehicle every month will be linked to the prime rate, in the hope that the prime interest rate would move down over the duration of the contract, which would in turn reduce the monthly repayment. Once you have decided upfront on a fixed or linked interest rate, your chosen option is set for the duration of your contract.
7) Value-added products: There are a number of value-added insurance products to choose from. These include products relating to the car itself, for example service or maintenance plans, tyre insurance and dent and scratch protection. There is also shortfall cover, which protects you in cases where your insurance does not pay your claim in full. There are also various personal insurance products such life, disability and unemployment cover. Having a thorough discussion with a Finance and Insurance specialist will help you make the most informed decisions.
On a practical note, Mahoney points that when you are applying for finance, you need to bring a number of documents with you according to the requirements of the Financial Intelligence Centre Act (FICA). “These include your ID, driver’s licence, payslip and proof of residence. If your salary is commission-based you need to bring at least six months’ bank statements. Again – if you have queries or concerns, best practice advice remains to contact the F&A specialist at your dealership. They are there to help you and ensure that you drive away satisfied with your purchase,” he concludes.
With over 40 years of experience WesBank has become the leader in asset-based finance solutions in South Africa. The company is focused on providing quality asset finance and fleet management solutions for a number of market sectors. WesBank’s asset finance portfolio includes Aviation, Agriculture, Commercial and Company Vehicles, Plant and Office Equipment, Public Sector and Franchise finance solutions. Visit www.wesbank.co.za for more information.