How to ensure buying a new set of wheels is no headache

It may feel good to sit in a new car, but make sure your budget is good enough to deal with all the expenses that come with vehicle ownership.
It may feel good to sit in a new car, but make sure your budget is good enough to deal with all the expenses that come with vehicle ownership.
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The start of a new year is a popular time for buying a car, to coincide with a new job, the start of your professional life or a pay rise.

Sowetan Money asked industry experts to share their pertinent tips before buying a car. Here's the top seven:

Be prepared

Knowledge is power, say AutoTrader CEO George Mienie, who suggests some online research into the make and model to check which vehicles have a high resale value and are the most fuel efficient in their class.

Determine your budget and see what's available based on what you can afford, advises Faisal Mkhize, managing executive of Absa Vehicle and Asset Finance.

Mienie warns of extra hidden costs, such as higher insurance costs on "high-risk" cars that thieves prefer.

Also research the dealership to ensure you are dealing with a reputable one and safeguard yourself from buying the proverbial "lemon", WesBank advises.

Consider your budget

Create a budget and stick to it. The temptation of a new car can sometimes lure you into a commitment that isn't an ideal fit for your budget, Ghana Msibi, WesBank's executive head for sales and marketing, says.

Before you set your budget, factor in the extra costs such as registration and licence fees, and, importantly, the ongoing costs of the vehicle (see below), the Automobile Association advises.

Mienie says shopping for a car is like shopping for a house - the price is often open for discussion.

"Go in ready to negotiate," he advises.

Don't ignore the real cost

There's more to buying a car than just the floor price and what that amounts to in monthly repayments. When you buy a vehicle you commit to a number of ongoing costs including insurance, maintenance and repairs, fuel and even parking.

Don't forget if interest rates rise, your repayments are also likely to increase.

Ask yourself whether the financing and the additional costs are worth it when compared to public transport or even a ride hailing service.

Deposit or not

Consider whether you have a down payment or deposit or if you can trade in an existing vehicle. A larger deposit lowers your monthly repayments, Mkhize says. It could also enable you to finance the car over a shorter period and pay less interest.

The financing options

Research your finance options before you buy. You can choose between instalment finance, where monthly repayments are calculated on the purchase price of the car minus whatever deposit is put down at the start of the deal, or instalment finance with a balloon payment.

A balloon payment enables you to lower the monthly payments but leaves a portion of the loan amount to be paid as a lump sum at the end of the contract period. You will pay interest on the total outstanding loan and the balloon payment may be a nasty surprise at the end of the term if, like many customers, you forget about this obligation, WesBank says. If you can't pay this residual amount at the end of the contract, you will most likely have to refinance your car or trade it in.

Finance can be structured over periods from 12 to 72 months. The longer the term, the lower the monthly repayment, but it accrues more interest and you will ultimately pay a higher price. The longer the period over which the car is financed, the longer it will take for the settlement value to reach break-even point where you can trade it in.

Fixed or linked interest rate

When interest rates are low, you may be tempted to opt for a fixed interest rate that guarantees your monthly premium over the contract term. This makes it easier to budget, Mkhize says. You won't get any benefit when the prime rate drops, however.

You need to be sure about the rate you choose, because once you've have signed the contract, the fixed or linked rate is set for the duration of your contract.

New or used car?

A used car appears cheaper than the comparable new car but over the long term if the condition of the car is not good, the cost of maintaining a used car can add up. However, with enough homework and precautions it's possible to buy used cars relatively risk free.

Most new cars come with maintenance or service plans, which offer peace of mind, though this will not cover all workshop costs you may incur.

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