You may have been dreaming about a new set of wheels for a while. You’ve got it all planned out - the make, model and colour, and the places your purchase could take you. But have you considered the route to take to make your dream a reality?
Rudolf Mahoney, head of brand and communication at WesBank, notes that the journey from couch to car begins with good cognition. “Plan correctly from the outset,” he says, “and not only will your first year of car ownership go smoothly, but your personal finances will benefit in the years to follow.”
He gives the following tips to achieve this.
1. Prepare a budget
Mahoney points out that one of the most important considerations in buying a vehicle is your budget. You need to take note of every amount that you spend, and deduct that from your monthly income. This will give you an indication of how much you can afford to spend.
Other than the purchasing price, there are several additional costs that you need to factor in. Among others, these include fuel, insurance, tyres, services, and maintenance. It’s also important to note that these costs will change or increase throughout the year.
Mahoney points out, “On average, a young professional that buys their first car at around the age of 25, and replaces their car every five or so years, will have financed around eight cars in their car-buying lifespan.
“As a first-time car buyer, you need to decide wisely. The first car you buy and the way you manage your funds shapes your financial future and determines whether you will be stuck in cycle of debt till you retire,” he says.
2. Don’t break your budget
Mahoney says you need to be realistic about what you can afford and not stray from that budget, as it might not be worth it in the end.
“Rather buy a car that you can pay off easily and quickly. Three or four years down the line you’ll be able to trade that car in and really afford the model with all the bells and whistles,” he says.
3. Structure your contract
Once your budget is determined and you have decided on a car, the next step is to look at how you would like to structure your contract. While a short-term contract will have higher monthly repayments, you’ll end up paying less interest than if you were to take out a longer-term contract.
WesBank also points out that if you pay off your vehicle over a shorter term, you’ll be able to trade it in sooner, achieving optimal value on the second-hand market.
However, if you want to put less pressure on your monthly budget, taking out a longer contract will decrease monthly payments. The maximum contract term is 84 months, depending on the creditor. It’s important to look ahead to see if this is a commitment you’re willing to take.
A large deposit can also assist in decreasing your monthly repayments, as you’ll borrow less money from the bank to finance the purchase.
There is also the option of a balloon payment, however, this can be costly. A balloon payment is similar to a deposit, however, this is a large sum paid at the end of the contract term.
“If you remember to save up every month, you’ll avoid the shock of a balloon payment. A balloon can be used to help decrease monthly instalments, but they should be considered as a last resort and used wisely,” stresses Mahoney.
4. Value-adds to consider
WesBank notes that there are value-added products that can help you protect your purchase. This includes insurance to cover small items such as paint chips, minor dents, and even tyres and wheels. These insurance policies supplement the existing comprehensive insurance cover that you need to have.
Additional items to consider include financial insurance, top-up cover, and retrenchment cover.
“Value-added products can bring some peace of mind to a car purchase. Cars are expensive, but you can invest in a few safety nets to ensure that you don’t become financially constrained in tough times,” notes Mahoney.