/ 6 October 2010

Eight tips on buying a car — with your head

Market conditions are still tough and you need to be sure you can meet your monthly payments when your purchase a vehicle.

“Buying cars simply to impress friends and neighbours has become dangerous and is never sustainable,” cautions Andile Makhunga, Head of Vehicle Finance at First National Bank.

Before you buy new wheels …

  • Ask if the car suits your needs. Need a run-around for urban driving? Then don’t buy a vehicle that’s heavy on fuel. Buy with your head, not your heart.
  • Ascertain if you can afford a new or a used vehicle, and review the various financing options available.
  • Make sure you won’t be paying more than you can afford. “A good rule of thumb is that a customer should never pay more than 25% of their after-tax income on monthly vehicle repayments,” says Makhunga.
  • Make allowance for not only monthly repayments but also maintenance costs, monthly running expenses and annual insurance costs. Accidents happen every day, so vehicles should be comprehensively insured. You may also be required to fit a tracking device — that’s another cost to keep in mind.
  • Consider paying a deposit. Although customers don’t have to pay a deposit for vehicle finance any longer, your bank may require a cash deposit, depending on your credit profile. “It is always advisable for customers to pay a deposit as this will reduce the total cost of credit as well as the monthly repayments. It will also be easier to re-sell a vehicle sooner as the loan amount should be less than the value of the car,” says Makhunga.
  • Consider interest rates. You will have two options when it comes to interest rates: variable or fixed. If you take a fixed rate, monthly repayments won’t vary for the entire term of the contract. This allows you to budget effectively and provides peace of mind when interest rates start to climb. A variable interest rate will fluctuate in line with the bank’s lending rate, so monthly repayments will vary.
  • Shop around for the right vehicle before you make your final decision, especially if you are trading in a vehicle on the purchase. The price you’re offered can vary from dealer to dealer, depending on their stock levels and their ability to sell a traded-in vehicle.
  • Keep your credit record intact to ensure you can buy the car of your dreams. Pay your instalments promptly every month.

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