Hot hatch or sensible sedan? How to finance your car

Money | Personal Finance

At the start of your career, you probably just need a set of wheels to get you from home to work, to clients and everything in between, both reliably and safely.

Once you have been working for a few years, you’ll probably want to upgrade to something a bit better.

So, if you are in the market for a new or used hatchback, sedan, minivan or convertible, keep the following basic guidelines in mind.

Start with affordability

Have a hard look at your monthly income and expenses and decide on an amount you will be able to spend on a new car. Remember to include insurance, maintenance and fuel in your calculations. You also might want to install a tracker system on the car, which is an additional cost.

The most important part of buying a car is knowing what you can afford. It’s not only the purchase price – also consider other costs such as fuel, maintenance (eg services), monthly insurance, annual licence fees as well as any other unexpected expenses (eg new tyres).

City vibes or outdoor adventure…

Think about your lifestyle and the practical requirements your car needs to fulfil. If you live in a city and spend hours commuting to and from the office, a smaller fuel efficient hatchback might be a good choice. If you enjoy the great outdoors, then a 4X4 is your best bet.

To buy new or used?

If you buy a new car, you can choose the model, the interior and exterior and any extras and it also comes with a warranty. Generally, it features the latest safety measures and fuel efficiency is optimal. A service and maintenance plan is also included, which will help avoid exorbitant bills when your car is due for a service. However, you’ll be paying a premium for the new car smell and the new car benefits. Also, be aware of the car’s depreciation – it can lose 40% or more of value in the first year.

Buying a used car has its advantages. It’s less expensive, so you might be able to get a nicer model and the monthly insurance will be less. Because you cannot tailor-make the car, you might have to spend more time looking online and visiting dealerships to find the perfect fit. Make sure you buy from reputable dealers who will know the car’s service history.

Consider your options

Once you’ve chosen your car and you need finance, you should consider your options carefully:

  • An instalment sale agreement allows you to buy a car from a dealer or a private seller and pay for it in equal monthly instalments (including interest) over a fixed term – from 12 months to 72 months. The bank or credit provider owns the car until it has been paid for in full. When the final instalment is made, you become the official owner.
  • An instalment sale with a balloon payment allows you to buy a car from a dealer or a private seller and pay for it in equal monthly instalments with a balloon or lump sum payment (a last payment). The balloon payment is typically 30% of the purchase price. Although this deal reduces your monthly instalment, you have to pay large sum of money at the end of the term.
  • With a lease agreement you pay monthly instalments in exchange for full use of the car during the lease term, subject to certain restrictions (eg, a limit on your mileage or that you return the car in a good condition). At the end of the lease term, you may return the car to the lessor (the bank), buy the car from the lessor or renew the lease agreement.

Get insurance

Remember, comprehensive car insurance will protect you from theft, accident and damage. It’s essential. Many insurers will include 24-hour emergency assistance benefits such as roadside, medical and legal services.

Be diligent about your car service and maintenance. Know what your service intervals are and schedule these ahead of time. Check your car’s oil, water and tyre pressure regularly and replace your tyres when you need to.

Finance it through Investec at up to prime minus 1%

Once you’ve done all your research, calculated your affordability and have gone for a test drive, you can get in touch with your Private Banker if you’re an Investec Private Banking client. We offer competitive car financing options – up to prime minus 1%.

By paying off the loan on time and in full every month, you have the opportunity to build a great credit profile. This will put you in an excellent position to obtain credit in future easily, for example for a home loan.

 

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