A guide on buying a car on hire-purchase

I AM a 30-year-old woman and have saved R10000 as a deposit on a car. I earn R7400 a month after deductions. I would like to buy a new Polo 1,4 or 1,6 or Yaris T1/T3. Can you please advise if I qualify for buying a car in this price range on hire-purchase with a 72-month (or 60-month) repayment period or, alternatively, which cars do I qualify to buy. TK

I AM a 30-year-old woman and have saved R10000 as a deposit on a car. I earn R7400 a month after deductions. I would like to buy a new Polo 1,4 or 1,6 or Yaris T1/T3. Can you please advise if I qualify for buying a car in this price range on hire-purchase with a 72-month (or 60-month) repayment period or, alternatively, which cars do I qualify to buy. TK

THE whole matter of how to estimate the amount of hire-purchase financing for which one qualifies, and how to calculate the monthly instalments for the various possible periods (60 months or 72 months and so on) is a mystery to many people.

Unfortunately there are no simple, universal answers to these questions. That's why car dealers (for both new and used cars) are obliged to have qualified financial and insurance (F&I) experts available on the premises to advise customers.

I suggest you make sure you find an F&I expert whom you feel you can trust . An honourable person will treat your details as strictly confidential.

She (women seem to excel in this job) will have the current details of all the financial institutions at her fingertips without being unduly influenced by any one of them.

She will guide you on where you can expect the most favourable terms for your personal position, and then obtain a free, no-obligation quote from them.

If you are happy with the quote the real application process starts, with hefty forms to be filled in and lots of personal financial details required.

These forms are then sent to the relevant financial institution, which will do a thorough check on your financial track record and the accuracy of the information supplied by you. Based on that, they will calculate your monthly disposable income.

This is usually considerably less than your nett income, because they also look at unavoidable day-to-day expenses like food, clothing, transport, other debt repayments, etc.

Your disposable income, together with your points tally in their rating system to determine the amount they will grant you on an HP loan.

If you have a high score they might allow you a loan requiring almost the full disposable income in repayments.

It is, however, unwise to walk too close to the edge of the cliff, even if they allow you. You don't want to be blown over the edge by the first storm that hits you!

As you can see from this, there are so many variables in this process that it is impossible to quote any accurate figures.

But as a very rough guide, on a car costing R150000 (a ballpark figure for the Yaris T3 and new Polo ranges) on which you pay R10000 deposit, the monthly HP instalment will be something like R3600 if it stretches over 54 months, R3300 if it is taken over 60 months, and R2900 if the repayment period is 72 months.

The maths is easy, and frightening: For a vehicle costing R150000, of which R18421 is VAT, you will eventually pay about R204000 (54 months) or R208000 (60 months) or R219000 (72 months).

Yet, I am told that 90percent of car buyers go for the 72-month period. These figures include a once-off initiation fee of R1140 and a monthly service fee of R57, both amounts being standard for all financial institutions.

To illustrate the significant role the interest rate plays in determining monthly repayments: if you are a staff member of a financial institution and you are eligible for their staff rates that are, let's say, 1 percentage point lower than the "outside rate", the instalments quoted above drop to something like R3300 (54 months), R3000 (60 months) and R2600 (72 months).

You are no longer required by law to pay a deposit as part of an HP deal, though the bank might insist on one, and probably will do so if you are a first-time buyer. If a deposit is optional, discuss the pros and cons of a deposit with the F&I consultant.

In all cases the bank will insist on the car being kept comprehensively insured while the HP contract is in force, and you have to budget for an extra R500 - R600 per month for insurance on a car in the Polo/Yaris class.

I have steered clear of the possibility of entering into an HP deal with a residual, but that opens a whole new debate.

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