Bruce Fraser

Bruce Fraser

With Reserve Bank governor Tito Mboweni cutting interest rates in an attempt to kick-start a flagging economy, one sector that is likely to benefit is the motor industry.

In the past when times have been economically tough, motor manufacturers have at least been able to rely on the overseas market to absorb excess stock.

Unfortunately with the recession this time round being a worldwide phenomenon there has not been that luxury. As RoadRave columnist Phuti Mpyane regularly points out, there are bargains for those looking at buying a car right now. But what is the best way of financing that deal?

It usually depends on an individual's circumstances, but briefly, here are a couple of options available.

l THE CASH DEAL: If you are in the fortunate position of having some spare cash floating around, this is the way to go. A cash transaction will save you interest rate charges and will also put you in a better position to negotiate a good deal. Remember, car dealers are desperate to sell stock these days. So if you have a wad of cash available you should be able to dictate terms.

l INSTALMENT SALE: Here you pay monthly instalments over an agreed period - usually 48 or 60 months. A deposit will often be required (work on 10percent of the value of the car) and interest can either be fixed or linked to prime. During the period of paying off your car, insurance is compulsory and the vehicle only becomes legally yours when the last payment is made. Up until then it is the property of the bank.

l LEASING: Basically in this agreement you are renting the vehicle. At the end of the term you either return the goods or extend the lease.

This method of payment is popular with those who have their own business as you can claim back a portion of your payments at the end of the tax year. Again insurance is compulsory.

Whatever option you choose, it is always best to remember not to over-extend your financial obligations. It is not just the repayment on the vehicle you must pay every month but also insurance, licensing and, though it might sound obvious, petrol also! Although most of us begrudge insurance payments, it's one of those necessities for any car owner. With the number of hijackings, accidents and theft on our roads, it would be foolish to be without it.