Buying your first car is one of the most important financial decisions that you will make in your lifetime. It’s easy to get caught up in the excitement of buying a new car, but with so many options, where does one start? Doing your homework, before you visit the dealership, can mean the difference between overpaying and getting the right deal.
“Even though South Africa has recently emerged from a technical recession, consumers are still under pressure and adapting their buying patterns accordingly,” says Nelisiwe Baloyi, head of Absa Vehicle and Asset Finance. Here are a few things to remember when buying your dream car!
One of the first things you need to consider is affordability. It is key to remember that, when buying a car, it is not only the instalment that you are responsible for, but also vehicle insurance and maintenance costs.
Like when buying a house, you need a good credit score, especially if you need a bank to finance your vehicle. Don’t let your car put you in bad credit. Do your research to know what you will be able to afford and what will suite your taste and lifestyle.
Once you have decided on a car, you need to consider how you will apply for finance. You can either go directly to the dealership or approach your bank. In order to apply for vehicle finance from your bank you will need your ID, driver’s licence, salary slip and proof of residence.
There are a few finance options that financial institutions offer. The most common is the installment sale agreement (ISA), which is a credit agreement where the customer purchases a vehicle over a negotiated period, and at an agreed interest rate, with agreed monthly installments (payments).
The implementation of the National Credit Act in 2007 means you no longer have to pay a deposit and can negotiate a payment period of up to 72 months. Considering the impact of the interest rate hikes on disposable income, you can set a fixed interest rate to protect against further hikes.
Balloon options are available under instalment agreements – you will be obligated to pay this at the end of the term, but you benefit from reduced monthly payments. Balloon payments make vehicles more affordable and creates flexibility in cash flow. On the other hand, a balloon payment option will lock you into the deal for a longer period.
It can also be more expensive in the long run with trade-in value not met. Make sure you research your options before you decide to buy your dream car and speak to you bank if you need any advice.