Nicolette Dirk, finance writer, Justmoney.co.za
Last month sales for new cars were down by more than 16% on the previous month and nearly 11% on compared to last year. This is according to reports that stated that aggregate new-vehicle sales, were down by 17.7% from March and 10.7% from April last year.
Glenn Stead, head of products for vehicle and asset finance at Standard Bank, said new car buyers may soon be faced with escalating vehicle prices and additional interest rate increases. This could force people to consider the pre-owned car market in the near future, says Standard Bank.
“But instead of considering pre-owned cars negatively, choosing this option could be one of the wisest financial decisions many people could make,” said Stead.
End to bargain rates and deals
According to Stead the days of low interest rates and great offers from manufacturers, who have historically competed to sell new vehicles in a buyer’s market, are drawing to an end.
“The low value of the rand is placing pressure on the cost of imported vehicles and parts. Locally, interest rates are on the rise as the South African Reserve Bank uses this mechanism to keep inflation under control,” said Stead.
He added that inevitably, this means an increased sticker price on new vehicles. Motorists should now consider buying pre-owned vehicles.
The benefits of buying a pre-owned vehicle include:
According to Stead, the process of vehicle depreciation begins the moment a new car is driven off the showroom floor. By the time it is a one year old, the value has generally dropped by up to 30%. After the first year the depreciation rate slows to about 10% per year.
“This means you can buy an almost-new car or a ‘demo model’ with low kilometres at a vastly reduced price. Your monthly repayment is considerably lower and your interest costs will be reduced,” said Stead.
Most new cars are sold with service or maintenance plans. Options available vary, but some plans can run up to 120 000km or five years (depending which milestone is reached first).
“This is beneficial if you are buying a pre-owned vehicle. The first owner could have paid R40 000 or more for a service or maintenance scheme. You get the benefits of the remainder of the contract. You can buy a car from a dealer and have access to the car’s service history - a must have when buying pre-owned,” says Mr Stead.
What should you consider when opting to buy a pre-owned car?
• It is more difficult to finance a car that is more than 10-years old. Standard Bank, however, does offer finance assistance with classic cars that meet certain criteria.
• Banks will not finance vehicles that have been stolen and recovered.
• Finance will not be approved for cars that have been in accidents and written-off by insurance companies and then rebuilt. This is because of the risk of poor workmanship and potential future failure of these vehicles.
Stead said banks will also insist that a thorough mechanical and physical vetting of the vehicle takes place to ensure that its engine and drive chain are mechanically sound, and that it has not been involved in any major accidents.
“With many cars being sold with remaining warranties and service contracts, and with the thorough vetting process that takes place, the old belief that buying pre-owned means buying someone else’s problems, does not really apply to today’s market,” said Stead.
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