Should you buy a second-hand car?

By Jessica Anne Wood

According to Gumtree Automotive, in the past ten years South Africa has become a predominantly second-hand car market. New vehicle sales are declining, while the sale of second-hand vehicles increase.

However, the change has been a slow one. The National Association of Automobile Manufacturers of South Africa (NAAMSA) revealed that 617,000 total new vehicles were sold in 2014, compared to 714,000 in 2005.

Jeff Osborne, Head of Gumtree Automotive, while the sale of new cars to second-hand cars was 1 new for every 0.5 second-hand car sold in 2005, this number has since increased to 1.7 used cars sold for every new car sold.

However, WesBank noted that many buyers may have put off buying a new car near the end of last year, in order to register the car in 2016. WesBank revealed: “This exercise is not uncommon, but it does have its drawbacks. Often a car purchased in January will have been subject to a price increase meaning your decision to delay could hit you where it hurts most – your pocket. And it may require careful budgeting to ensure you can keep up with the monthly instalments.”

Car sales, new and used
In the November 2015 Vehicle Pricing Index (VPI) (third quarter results) released by TransUnion, Derick de Vries, CEO of Auto Information Solutions at TransUnion, noted: “The impact of macro-economic factors is clearly evident in vehicle sales, with both new and used vehicles showing a slight slowing down in price increases versus Q2 (second quarter), a direct result of struggling sales volumes of new vehicles and a struggling economy.”

According to Gumtree, economising might be the reason behind this, as consumers try to cut back on their spending.

“Vehicle sales, both new and used, are a good indicator of the state of the economy. Credit health and the Gross Domestic Product (GDP) growth are low and South African households are putting off purchasing new vehicles as a result. The affordability and variety of the second-hand market, coupled with the ease of entry into private sales, are encouraging sellers to become their own brokers as it were, and dealerships are pushing used car sales to make up for the shortfall of declining new sales,” stated Osborne.

He added that more than 1.4 million potential car buyers are viewing the automotive category on Gumtree each month. “Dealerships have embraced the fact that their consumers are online and browsing for bargains and they are using the convenience and responsiveness of classifieds to drive sales,” said Osborne.

As a result, the second-hand car market has become more ‘formalised’, as real-time analytics allow car dealerships to see which ads perform best, and which forms of communication result in the best quality leads.

Top tips for car buyers
“A new year with new beginnings, and then a new car – it’s the dream that we all want to live. But buying a car is not just a new year’s resolution, it’s a five- or six-year-long commitment. Plan correctly from the outset, and not only will your first year of car ownership go smoothly, but your personal finances will benefit in the years to follow,” highlighted Rudolf Mahoney, head of Brand and Communication at WesBank.

Below are some tips from WesBank for those looking to purchase a new car in the new year.

1.       Have a budget: Mahoney stressed that one of the most important things when purchasing a car is to draw up a list of all your current expenses and income. Following this, you should shop around and look for a sensible and affordable vehicle that will suit your budget.

When drawing up your budget, you need to take note of every little amount that you spend, and deduct that from your monthly income. This will give you an indication of how much you are spending each month, as well as how much you can afford to spend on a vehicle.

However, there are several other costs that you need to factor in when looking to purchase a vehicle. These include fuel, insurance, tyres, service costs and any other related costs. It is also important to note that these costs will change or increase throughout the year.

WesBank stressed: “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.”

2.       Don’t break your budget: It is all good and well having a budget, until you break it. It is important to know what you can comfortably afford to pay, and stick within that amount.

Mahoney advised: “Be realistic about what you can afford and don’t stray from that budget – it might not end up being worth it. 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.”

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. One thing to note is that while a short term contract will have higher monthly repayments, you will end up paying less interest than if you were to take out a longer term contract.

WesBank also pointed out that if you pay-off your vehicle over a shorter term, you will be able to trade it in sooner, “and while it’s worth more on the second-hand market.”

However, if you are wanting to place less pressure on your monthly budget, taking out a longer contract will lower the cost your monthly payments. The maximum contract term is 72 months (six years). It is important to look ahead to the future to see if this is a long term financial commitment you are willing to take.

In addition, if you make a large deposit when purchasing a vehicle, it can also assist in lowering your monthly repayments. This is because you are making a down payment on the vehicle and will therefore have to borrow less money from the bank to finance the purchase.

When purchasing a vehicle 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 lower monthly instalments, but they should be considered as a last resort and used wisely,” emphasised.

4.       Adding some value: WesBank added that there are a few ways that you can get the best value for your money. This includes getting insurance to cover things such as paint chips, minor dents, and even tyres and wheels. These types of insurance policies supplement the existing comprehensive insurance policy that you have.

There are a variety of other products that you can make use of when purchasing a vehicle, including financial insurance, top-up cover, and retrenchment cover.

“Value-added products can bring some peace-of-mind to a car purchase. Cars are expensive, so you can invest in a few safety nets to ensure that you don’t become financially constrained in tough times,” highlighted Mahoney.

Recent Articles


Take advantage of the Aha Pensioners’ discount

Price: Available on request
When: Daily
Where: Nationwide

Save on VW Polo with Absa

Price: Available on request
When: Until 30 April 2021
Where: Nationwide

Large Pizza for R169.90 at Debonairs

Price: R169.90
When: While stocks last
Where: Nationwide

Latest Guide

Guide to debt rehabilitation solutions