Fairland, Gauteng -- (SBWIRE) -- 04/06/2013 -- When it comes to buying a car, the financial considerations of owning your dream ride are just as important as the number of airbags, power steering or boot space for those long distance travels or monthly groceries.
According to George Nyabadza, General Manager - Public Sector and Marketing at WesBank, South Africa’s leading asset-based financial solutions provider, these financial considerations include much more than the price tag.
Buying a car is a long-term commitment and making the correct decision to suit your pocket can be overwhelming for some, especially if you do not have a comprehensive checklist to guide you during the process. That is why it is vital to ensure that you are well informed about the process, in order to make the correct financial, and in some cases, life-impacting decision.
Nyabadza suggests you include the following steps in your decision-making process:
1. Firstly, know clearly what you, and possibly your immediate family, can afford. Correct budget planning is essential in selecting a vehicle that you can afford to finance in the long run. This means considering how inflation and interest rate fluctuations impact not only on your monthly instalments, but also your insurance costs, fuel consumption costs and maintenance costs of the vehicle.
Beyond these obvious car-related costs, you should also consider what could possibly transpire in your life over the term of the vehicle. If, for example, you are financing a car over the long-term, what would be the consequences of your financing decision if you got married, had children or needed to provide for your parents in their old age?
2. Choose a reputable dealer that has extensive knowledge of the vehicle market and is able to advise you on all aspects of the vehicle that you want to finance.
3. Know what criteria you need to meet to have your finance approved. The National Credit Act (NCA) requires confirmation of income, debt and expenses. Basic affordability can be determined by subtracting your monthly expenses from your income. You may have heard it many times, but you should have a living monthly budget that you regularly review and stick to as much as possible.
4. It is imperative to have your vehicle insured as this could save you unnecessary costs when it comes to the repair bill. It’s also worth remembering that should you have an accident and cannot afford to have the car repaired, you will still be required to pay the monthly instalments, whilst not having the benefit of a car. It is also advisable to have your car maintained according to the manufacturer specifications to avoid further cost implications.
5. Ensure that you structure your finance agreement in line with your budget by considering a repayment plan based on when you are most likely to trade your car in. For example, the common payment period options are 48, 60 and 72 months, which indicates the number of months you have to pay off your car.
It is worth considering that while longer payment periods mean lower instalments each month, you will need to make payments for longer. The length of the contract could also have an impact when you decide to sell your car.
For example, should you want to trade in your car before your contract period ends, the optimal time to do so is when the trade in value meets the settlement amount, which is the amount that you still owe on the car. On a 48 month contract, this “break even” point could, for example, be around 28 months. However, for a 60 month contract your break-even point could be much longer, at say around 42 months and on a 72 month contract, this would be even further out, at say roughly 54 months.
Should you consider financing your vehicle using a balloon payment, Nyabadza recommends that you first fully understand the financial impact of a balloon payment on your cash flow. A balloon payment is an agreed inflated final payment of a loan that is paid in full at the end of the loan agreement. It is commonly used locally in vehicle finance as a way of reducing monthly instalments. You will remain completely liable for the balloon payment irrespective of what happens to your vehicle during the terms of the contract. It is therefore important to ensure that your vehicle is fully insured at all times and regularly serviced and maintained, in order to retain good value should you wish to sell the car after paying off the balloon payment.
6. Once your payment structure has been finalised, always ensure that your payments are made on time in order to maintain a good track record to increase your chances of further future finance. Should you not be able to meet your monthly payment commitments, contact the bank immediately and get advice on how to best move forward in a manner that is acceptable to both the parties.
7. Finally, improve your chances of a successful finance application by providing all relevant information and requesting advice from reputable dealers who will have finance specialists on site. These industry experts can make recommendations on what vehicle and financing package suits your needs and falls within the limits of your pocket.
About Wesbank
WesBank has over 40 years of experience in asset and vehicle finance. As a leading asset-based finance provider in South Africa, we finance new and used vehicles for personal use, both privately and through dealerships, as well as leisure vehicles, and also offer expert advice and professional service to our clients.
Our other main focus is providing quality asset finance and fleet management solutions for a number of market sectors. WesBank’s asset finance services cover aviation finance, agri finance, commercial vehicle finance, company vehicles, plant equipment, office equipment, public sector finance and franchise finance. In addition, we offer personal insurance, vehicle insurance, personal loans as well as business insurance, and we are perfectly placed to structure a finance deal to suit your needs.
WesBank is a division of FirstRand Bank Limited, which in turn, is part of the FirstRand Group. FirstRand is South Africa's most innovative Bank Assurance Group with interests in Retail and Merchant Banking, Life Assurance, Financial Planning and Medical Schemes.