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Buying Your First Car or Upgrading? Weigh Your Options Carefully

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05 Jan 2018
Lifestyle, Lifestyle Tips, Wealth
by FLUX Mag

Owning your own car is your ticket to independence and enhanced mobility without relying on others or public transportation to move from one place to another. According to UN statistics, the population of South Africa is more than 57 million while there are over 12 million legally registered vehicles in the country.  despite an unfavourable economy with 470,663 units sold in the period January-November 2017. If you are planning on getting a car for the first time, or simply upgrading to the latest model, here are some important concerns to keep in mind.

Affordability

If you are a first-time buyer, you probably don’t have enough savings to fully pay a car. Even if you have a good chunk of savings to give as down payment, you will still need to find alternative financing whether going to private lenders such as your parents or a rich uncle or to traditional financing institutions like banks, cooperatives or financial houses.

When tapping formal institutions for money, you will need a credit history which you probably do not have yet as a first-time buyer. This will affect how much you can borrow as your history reflects your reliability as a debtor whether you pay monies owed on time or default frequently.

But there are also sources of financing that do not need a credit history. There are banks that offer special borrowing schemes for young first-time buyers for as long as you are dutifully employed and a graduate under 31 years. The question remains though, do you really want to be saddled with debt before you have saved or earned enough to afford your own car?

Know the Difference Between Fixed and Variable Interest Rates and Balloon Payments

Going into debt means that you must pay back the principal plus interest over time. If you are using a car loan to buy a vehicle, put as much money as you can as an upfront deposit because larger down payments equate to lower interest rates and balloon payments. While longer payment periods and large balloon payments (payment of the main loan) will lower monthly obligations, you will end up spending more on interest payments plus the principal at the end of the loan period. Thus, as suggested by Crediful (www.crediful.com), it is important to think realistically about what you can afford based on your disposable personal income after deducting all expenses.

Where to Get Financing

If you own a home and have equity, you can go to the bank and ask for refinancing so you can buy a new car. This form of financing is often favorable to borrowers as interest rates are better than traditional vehicle loans. Otherwise, you can apply for regular loans at banks or financial institutions. You do need to meet standard requirements such as being of legal age (18 years or above), must be a national of South Africa or a foreigner with valid passport/permit, among others. The bank or financing institutions will tell you if you qualify, and what is best for your situation given your employment conditions and credit history.

Buying a new car is a straightforward process in the end if you know how much you can afford to pay back without going through a vicious cycle of repayment and refinancing. Do remember as well that a car is a depreciating asset losing 10-15 % of its value the moment you drive away from the dealership. With that in mind,  or finding the best financing terms that won’t bury you in debt is the ideal strategy.

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