Cars can be expensive to run and maintain so if you need to downgrade you can always trade in or sell your car. A cheaper car will ease pressure on household finances in a number of ways. But there’s a right and a wrong time to sell your car according to WesBank’s head of brand and communications, Rudolf Mahoney.
If you have purchased a car within the last 18 months don’t bother trading it in because the depreciation will make it difficult to trade in and buy a more affordable car. The optimal time to trade in one’s car is when the trade value for the car is more or less in line with the settlement amount owed to the bank.
Don’t trade in before this breakeven point unless you’re happy with forking out money from your own back pocket to settle the difference or take out a loan for more than your new car is worth.
When it comes to trading in your car – perfect timing is key. Currently the vast majority car finance applications are done over 72 months or six years. If you’ve taken out a balloon payment on your car remember that the breakeven point will be reached later in the car ownership cycle.
WesBank says that if you sign a 72 month car finance agreement, the breakeven point only arrives at between 48 and 52 months into the contract. However, many consumers choose to trade in their car before this point – WesBank’s data shows that, on average, buyers trade in at month 38. Thus, most people trade in their cars with between 10 and 14 instalments before they reach the breakeven point.
“In an ideal world, car buyers are able to wait until their loan balance is equal or higher than the amount still owed. This means no shortfall or paying off additional loans,” says Mahoney. “The best way to bring this breakeven period forward is by using a larger deposit or shorter loan period. Longer contract terms and balloon payments will push out the breakeven point, and thus delay your new car purchase.”
Trade in assistance
While the ideal point to sell a car is at the breakeven point in the finance contract, consumers can still take advantage of marketing incentives offered by manufacturers. These are often labelled as trade-in assistance programs and provide consumers with financial assistance to settle outstanding balances on the car they wish to trade in. However, these incentives are only available when buying a new car.
But not all dealers offer this or will continue to do so. Due to the poor performance of the Rand manufacturers and dealers are spending less on marketing – thus affecting their ability to offer trade in finance schemes to new car buyers.
If your local dealer can’t offer you such a scheme you’ll either have to hang on until that golden breakeven point, opt to pay a balloon payment or sell your vehicle privately. Balloon payments can be a dangerous option if you are not disciplined.
“We always teach first-time car buyers this rhyme:‘D before B except if it’s C’, so they know the various options available to them along their car-buying journey. Rather put down a big ‘Deposit’before looking at a ‘Balloon’ payment unless it is absolutely ‘Critical’. If you can’t afford the monthly car payments without the deposit, then ask the dealership about the balloon payment,” says Mahoney.
To pay off the balloon payment, Mahoney recommends saving money each month, while paying off the car, and use those savings to settle the balloon at the end of your contract. Alternatively, to pay off the balloon you’d have to sell your car privately.
Private sales will allow you to ask a higher price than any dealership could offer – and this higher price could make up for the shortfall, or even net a small profit. Sell your car on classified websites such as Gumtree, OLX, JunkMail, CarFind and Autotrader – you can usually do so for free.
“All you have to do is register onto the online classified site, load a picture of car and list the details of the model with your preferred purchase price. Your car is then loaded to the virtual showroom and you can expect to get emails and calls from prospective buyers. We have joined forces with Surf4Cars to create the WesBank Classifieds network to make selling your car online that much easier,” says Mahoney.
“Selling privately takes a bit of patience, but the rewards could be very worthwhile. It used to be a complex process, but now we have systems and products that assist both private buyers and private sellers,” says Mahoney. “If you can sell your car and break even in your current finance deal, then you’re one step closer to getting a more affordable car that suits your budget – all without paying for the privilege.”
WesBank also has a Used Car Buyer Guide to assist pre-owned buyers to make their car-buying journey a little easier.
Handy tip: If you need a car loan, click here.