It is a huge investment when you decide to buy your first car and it can be quite overwhelming, especially as you need to know how your new purchase will hit your pocket. However, the key to making your first car purchase stress-free is to know what you can genuinely afford.
Let’s take a look at what you need to know about vehicle financing.
Is It Affordable?
Not only will you need to look at the purchase price, but you also need to look at how much it costs to maintain the car. Your affordability will be influenced by your salary, the deposit amount and your credit score.
The price that you see for the vehicle will generally not include the price of on the road charges like dealer admin fees, roadworthy certificate, number plates, registration fees etc.
Ask the dealer to list all of the costs upfront, so you know what to expect and you will have the opportunity to negotiate these costs.
Your Finance Options
Many of us won’t be able to pay cash for a car, which is why the majority of us will need to get vehicle financing. There are a few vehicle financing options to choose from.
Generally, car buyers will go for an instalment finance option, which is where you will pay a deposit, which is then followed by monthly instalments for a certain period. Once the time has elapsed, the car will be yours.
If you have decided to go for a new car then it will come with a service and maintenance plan, but you will still need to get insurance. If you have chosen to go the pre-owned car route and the plan has expired then you will need to get both a maintenance and insurance plan. However, you can find pre-owned vehicles with a service plan still intact.
What is a Balloon Payment?
If you are struggling to pay a deposit then the other option is to take a balloon payment.
A balloon payment helps buyers at the start of the finance agreement. With a balloon payment, a certain amount of the purchase price is set aside in favour of lower monthly instalments.
The deferred amount will still need to be paid and will be due at the end of the finance agreement.
For a balloon payment to work for you, you will need to be disciplined and will need to save money each month so that the debt can be settled at the end of the term.
What About Renting a Vehicle?
You can choose to rent a vehicle for an agreed amount of time with the full maintained lease (FML)option. This gives you everything you need but without the hassle of owning a car.
Usually this option is for commercial vehicle, but you will find car lease companies that offer this. Dealerships will not offer this option.
With this, you will pay a monthly fee, which will cover all maintenance costs and when the term ends, just return the vehicle. You can then choose to rent another car or walk away.
The monthly instalments for an FML deal are generally lower than a typical instalment deal and you can change your car more frequently. However, you will never own a vehicle. Some contracts may have an expensive per kilometre rate once you have driven a certain distance. This can make these deals expensive if you plan to use a vehicle for a long time.
The Buy Back
Another option is the guaranteed buy back, which is where you and the bank will agree on a figure that the car can be bought back once the agreement ends.
The monthly instalments will be lower, but these deals have very strict Ts &Cs attached in regards to the mileage and upkeep. You will also be responsible for insuring the car.
Having car insurance is vital as you may find that you can’t pay for parts and repairs out of pocket. If you are looking for car insurance then it’s best to shop around and compare quotes from top providers in South Africa, so you can get the best deal with the best coverage.