What is the process of buying a car in South Africa? Are you thinking of buying a new car? Not so fast.
What is the process of buying a car in South Africa? Are you thinking of buying a new car? Not so fast. Before taking on a long-term financial commitment, you'd be well advised to take your time and thoroughly research your options. Not only should you take into account the asking price of the vehicle you've got your eye on, but you'd also be well advised to consider the long-term financial implications of the car in question. There are numerous factors to weigh up before deciding on the vehicle that best meets your needs, so before you sign on the dotted line, make sure to follow these seven handy steps:
Your first port of call when looking for a new vehicle is the car manufacturer's website. Many offer handy online tools enabling you to 'build' and price your dream car, based on the various extras available to you. If you're in the market for a used car, there are numerous sites that not only enable you to compare options side by side, but also to select your desired budget. But what should you be looking out for when doing your research?
Safety is always a good place to start and should be at the top of your checklist. So make sure to do your research on the safety record of the make and model you have in mind before making any commitments. It's also important to remember that your vehicle will start to depreciate in value the second you drive it off the showroom floor, so it's important to understand the potential resale value thereof, as at some point you're likely to sell or trade it in.
You'll also want to take into account the quality of the after-sale service, as this forms a critical element of the experience. Not only can poor service be frustrating, but it can also be costly, so make sure to check out a variety of online forums and social media groups to get a better idea of what you can expect once you've purchased your vehicle.
When mapping out your budget, it's vital to take into account not only the price of the vehicle itself, but also the running costs, financing options and associated car insurance premiums. Remember that a car is a long-term investment, so you'll need to work it into your monthly budgeting.
Once you've got a better idea of the car you're looking to buy, it's time to secure that all-important financing. Many dealerships provide in-house financing with a lender partner, which could be an easier option if you're unable to get finance elsewhere. The important thing is to get as many quotes as possible from a variety of different finance providers, and to do your best to negotiate the option best suited for you. If you are looking to trade in your vehicle, make sure you understand its current value, and decide whether or not you'd be better off selling it privately. In terms of financing, you have a number of different options available to you.
Installment sale agreements
If you opt for this financing option, you'll be obliged to pay off your car loan in equal monthly installments over a designated time period, which can span between 12 and 72 months. The longer the term of the loan, the lower your monthly installment will be, but remember that you'll be paying a lot more in interest, and thus spending more over time. As such, you'd be well advised to try to pay off the car as quickly as possible, or to pay an upfront deposit so as to reduce the overall loan amount. Banks will calculate your monthly installments based on the vehicle price, upfront deposit amounts and the potential trade-in value of your current vehicle.
Residual or Balloon
A balloon or residual payment refers to a portion of the amount due payable at the end of the repayment period. Many car finance providers offer this option as it allows you to pay a significantly lower monthly installment. But beware, because while this might sound like an appealing option, balloon or residual payments increase the total amount owing to the lender, and you'll need to be able to pay the balloon amount at the end of the term if you want to own the car outright, so make sure you have the necessary funds available.
Variable vs. Fixed Interest Rates
A variable interest rate is essentially determined by market forces, and can increase or decrease based on the predetermined 'prime' lending rate. If you opt for this type of interest rate, you could end up paying less over time, but bear in mind that this is a riskier option, as it could end up working against you. A fixed interest rate is typically higher, but will be guaranteed for the duration of your repayment period, thus allowing you to make adequate provisions in your budget. So make sure to do your homework on the pros and cons of each option before making your decision.
When making a big decision, it's always best to weigh things up and think ahead. After all, your new car will hopefully be with you for some time. So make sure to take a test drive – even more than one if you need to – and be mindful of both your current and future needs. Take into account how much time you spend in traffic, how often you're planning to go on holiday and the size of your family unit, as all these factors could impact your final decision. It's also important to remember that while automatic cars might be more expensive, they're typically more fuel efficient in the long run, so make sure to factor this into your calculations if a manual car isn't your speed.
Don't be afraid to ask for a better price. Whilst it might not seem like the done thing, the dealer's asking price isn't necessarily set in stone. So do your best to bargain down and you might be surprised at how much you're able to save. Equally, you'll probably be able to negotiate a better interest rate with your finance provider if you have a good credit score, so make sure to ask the question rather than simply accepting the first offer.
The current economic climate is nothing if not dynamic, so it's important to factor this into your thinking before committing to a long-term contract. Before buying a new or used car, make sure you work a 'buffer' into your budget, taking into account the fluctuations in fuel prices, insurance and maintenance costs. It's always better to spend slightly less and leave yourself some breathing room in the event that the financial landscape should change.
Should you find yourself at any point having difficulties with your loan repayments, it's vital that you contact your lender as soon as possible so as to restructure your loan agreement. Remember that cancelling your insurance is never a good idea, even though it might save you money in the short term. Cancelling would result in you having no cover at all, and if anything were to happen in that period, you could end up with an additional bill you're not in a position to pay. So before taking drastic action, contact your insurer to see what alternatives are available to you.
When trying to determine whether or not you can really afford that car you have your eye on, it's best not to allocate more than 15% of your monthly income to car loan repayments. Bearing that in mind, you can use one of the many online vehicle finance calculators to calculate what your monthly repayments might look like. Should you have a positive credit score, you might be able to negotiate a better interest rate, but don't take this for granted. If you have money available to put down a deposit on your new car, this will undoubtedly be beneficial in the long run, as you'll be able to lower the amount owing each month and potentially shorten the repayment period.
Over and above your standard monthly repayments and insurance premiums, it's important to take into account other costs that typically tend to arise, particularly once your initial warranty period ends. Brakes and tyres tend to need replacing every few years or so, and you'll need to factor in the cost of regular servicing. Before settling on your choice of car, look into the possibility of an extended warranty or service plan, which could prove enormously beneficial in the long run. It's also important to remember that wear and tear repairs aren't typically included in warranty or service plans, so it's important to understand what these are and what financial implications these might have.
Buying a car is undoubtedly a significant financial undertaking, but by following the correct process of buying a car in South Africa, you'll be able to minimise the impact on your income and ensure you drive off the showroom floor with complete peace of mind.
Miway is a licensed non-life insurer and Financial Services Provider (FSP 33970).
