Buying your first car is one of the most important financial decisions that you will make in your lifetime. It’s easy to get caught up in the excitement of buying a new car, but with so many options, where does one start? However, doing your homework before you visit the dealership, can mean the difference between overpaying and getting the right deal.
“Even though South Africa has recently emerged from a technical recession, consumers are still under pressure and adapting their buying patterns accordingly”, says Nelisiwe Baloyi, Head of Absa Vehicle and Asset Finance. It is therefore pivotal to make the right decision when buying your first car.
One of the first things you need to consider is affordability. It is key to remember that, when buying a car, it is not only the instalment advised by the bank that you are responsible for, but there are other factors to consider such as the vehicle insurance and maintenance costs. Furthermore, consideration should be put into what the vehicle is going to be used for- business or personal use? This should assist you in making that huge financial decision.
The finance process
- Ensure that you have a good credit record, that you are managing your finances and that you are in good standing with the credit bureau.
- Do your research and investigate what you can afford and what suits your lifestyle. Affordability calculations should be taken into account as well as the interest rate increases (which increases the monthly instalment) as well as fluctuations in the fuel price.
- Once you have found the vehicle of your choice, there are different options on how you can apply for finance- you can go directly via the dealership where you are buying the vehicle, visit any Absa branch, complete an Absa vehicle finance application online or via the Absa Contact Centre. Once your application has been made, you will then be informed whether your application has been approved or not.
- The process thereafter is fairly straight forward- in order to do your application, you will need your identity document, driver’s license, salary slip and proof of residence (FICA). Your AVAF sales consultant will liaise with the dealership to finalise the arrangement and settle your vehicle, should you have a trade-in (the marketer is not responsible for the settlement of the vehicle, the dealer is).
- You will then be required to sign an Absa e-Contract or go into the branch and be given a release form which you will hand in at the dealer, before taking possession of your new vehicle.
There are several finance options to consider
- The most common is the instalment sale agreement (ISA), which is a credit agreement where the customer purchases a vehicle over a negotiated period, and at an agreed interest rate, with agreed monthly instalments (payments).
- The implementation of the National Credit Act in 2007 means you no longer have to pay a deposit, and can now negotiate a payment period of up to 72 months.
- Also, considering the impact of the interest rate hikes on disposable income, you can set a fixed interest rate to protect against further hikes.
- Balloon options are available under instalment agreements – you will be obligated to pay this at the end of the term, but you benefit from reduced monthly payments.
The pros and cons of residual values and balloon payments
|Makes vehicle more affordable||Locked into a longer deal period (e.g. finance over 72 months with a balloon)|
|Creates flexibility in cash flow||Can be expensive in the long run ( more interest being paid)|
|Trade-in value may not be fully realised due to deferred capital being pushed to end of term (i.e. less capital being paid off in the first half of deal period).|