A car purchase is an exciting time in your life, especially if it is your very first car – or equally exciting, your first SUV or sports car! However, be aware of emotion driving your purchase decision. When it comes to laying down your hard earned cash on a four-wheeled asset you want to avoid being driven solely by an abstract, chemical generated set of responses.
Cars are a significant outlay. No matter the segment or the level which you buying into, you are guaranteed to spend a chunk of capital followed by many years of insurance and maintenance costs. Rational buying places you in a position of control to gather information, opinions and run thorough research on the pros and cons.
Emotional buying is incredibly tempting, you worked so hard and finally have the satisfaction of those keys fall in your hands – the joy, fulfilment, satisfaction (& those Instagram likes). What better way to signal that you have made it!
Unfortunately, fleeting emotional satisfaction can leave you in tears (and a hole in your pocket) all because you chose the 10-year-old luxury German car with high running costs over the brand new, cost-effective Japanese buy.
Here are a few pointers to get you going:
Target a final price you want to spend on a car:
If you’re going to finance the purchase, ensure you wrap up the instalments, on the road costs and insurance into a single monthly figure you can afford without skipping on rent or starving your kids. “You can sleep in a car, but you can’t race a house!” – leave those terrible one-liners to Vin Diesel and his crew.
Interrogate the numbers:
“Hey, I can afford this G-Wagon each month”. Fast forward 5 years and you’re paying off the GDP of a small country as a residual (balloon) payment. Having this lump sum owed at the end of the term can be suffocating. Right now interest rates are low, but they won’t always be at these levels. Refinancing this balloon payment at a higher rate could come as a nasty shock. The trade-in value of your vehicle may also end up at a very steep discount to the amount owed. Ultimately, you end up coughing up more to settle a heavy balloon payment & having this huge mountain of debt is never recommended.
Find a segment that you want to buy into:
Compare apples with apples as benchmarking R300k sedans to R300k SUVs will lead to gaps in comparability and lead to information asymmetry in decision making. Highlight some makes and models that appeal to you & compare specifications within those verticals.
Decide between new or pre-owned vehicles:
There are many hidden gems that you can find in the used car market. One-year-old cars that take huge knocks of depreciation can be your golden bargain, but there is also great benefit in the purchase of a brand new car. Consider the residual and pre-owned values of that particular brand to mitigate against depreciation should you want to sell or trade-in a few years down the line. There are many useful calculators online to help you approximate what the model of your vehicle will be worth in the future and the estimated depreciation you can expect. Here is one such site: https://www.themoneycalculator.com/vehicle-finance/calculators/car-depreciation-by-make-and-model/
Motor plans, service plans and warranties:
These are your best friends in car ownership, however, they do not last forever and some cases can be tremendously expensive to extend. Ensure the vehicle you’re looking at can be covered comprehensively by the manufacturer from new or be cost-effective to extend when looking at pre-owned models.
Cars which are out of plan will cost you to service them, most manufacturers expect you to service once a year or every 15,000km to 20,000km, costs may vary by manufacturer and is dependent on the yearly maintenance required… and we haven’t even mentioned spares yet, which could end up costing you an arm, leg and half a liver if you are not too careful.
Relationships may run on hopes, dreams and love… but your car doesn’t. Ensure you consider fuel consumption, as this will be a cost incurred to you every week. If you are considering an electric or hybrid car, there are installation costs of chargers to be accounted for. Tyres, if you are Bo and Luke Duke, from Dukes of Hazzard, you’ll be running through these monthly, but the rubber can get expensive, especially on premium, performance cars and bakkies or SUVs – expect to replace them every two years.
Speak to as many people as possible and take your time:
Check out online forums, compare reviews online, look at the most common issues associated with certain models. Feel free to reach out to us at BankerX to facilitate these conversations and help connect you to different networks so you have the right information toolkits to run your own comparisons and make information fuelled decisions.