WesBank, the leader in vehicle and asset finance solutions, offers the following advice to first-time car buyers to better understand the ins and outs of making a long-term purchase agreement, and to provide them with the tools and resources they need to make informed financial decisions.
“We strive to help young people achieve the freedom and advantages that come with owning a car, while ensuring that it does not become a financial strain. As a responsible lending institution, we have leveraged our industry expertise to provide practical advice that will give them greater confidence when purchasing a vehicle. Our goal is to assist them in making informed financial decisions that will have long-term benefits,” says Kutlwano Mogatusi, Communications Specialist at WesBank.
Used or new?
When considering what to buy, there are advantages with both new and used cars. For example, a new car comes with no previous history. You will be in full control of how well it is driven and maintained. You also have options such as maintenance plans and warranties from the manufacturer, which is a definite plus for managing costs and risk.
Used cars, on the other hand, already have a history, however, it would help you to make an informed choice if the previous owner kept a detailed service history. Make sure you ask the seller about any issues with the car or if it has been involved in an accident. You should be able to tell from the state of the car if it’s been well looked after, both inside the vehicle and under the bonnet.
Choose a reputable dealership
Buying your car through a reputable dealer, such as a dealership approved by WesBank, does come with peace of mind. The dealership environment is professional and safe, and there are qualified people to guide and help you through the process, including all the admin and paperwork, which can be daunting for a first-time buyer. The dealer is responsible for ensuring the cars on the floor are in good condition, are not stolen and don’t have any outstanding debt attached to them. Reputable dealerships have inspection reports for their cars that you can ask to see. Also ask the dealer if they offer any guarantees and make sure you get all the facts around this in writing.
Understanding financial terminology can be quite challenging, especially if you’re just starting out on the car buying journey. So, when you encounter an excess of jargon that you don’t understand, ask questions and request explanations that simplify the terms.
“To get started, it’s important to grasp some of the basic terms that are frequently used in the world of vehicle finance. By understanding some fundamental concepts, you’ll be better equipped to navigate the financial discussion and the meanings behind the jargon that’s used,” says Mogatusi.
Here are some of the basic terms you should get to grips with:
Credit score
Your credit score reflects the way you manage your monthly payments for clothing accounts or a student loan, and this payment history is shared with the credit bureaus. Financial institutions then use this information to determine whether you’re going to be a responsible candidate to whom they will lend money, or a credit risk. If you don’t yet have a credit history, WesBank’s specialised Graduate Finance programme does make allowance for this, if you meet the required criteria as a recent graduate.
Finance period
The finance period is the length of time you have to pay off your car. The length of the finance period affects your instalment amount and how much interest you pay. Paying off your car over a longer period can be tempting, because it reduces your monthly amount and that looks great on your budget, but you could end up paying more interest in the end so your car will cost you more. If you can comfortably pay off your car over a shorter period, by increasing your instalment, you will pay less interest overall, which would be better for you in the long run.
Balloon payment
A balloon payment should be approached with caution when it comes to your car finance agreement. A balloon payment is a lump sum amount that needs to be paid at the end of a vehicle finance contract. It can be tempting because, at the time of getting your car, adding a balloon payment can reduce your monthly instalments, but don’t be naive. Think long term. The balloon payment means that you are not only paying more interest in total, but it can come back to haunt you at the end of your finance agreement, and that could be a financial shock if it hasn’t been planned and budgeted for correctly.
Total cost of car ownership
There’s a lot more to the cost of owning a car than simply paying your monthly instalments on time. You also need to budget for the cost of keeping it running. You will also need to account for expenses like fuel, insurance, servicing and maintenance, tyres, tolls and possibly even speeding fines. Don’t over-extend yourself by going for a car that has monthly instalments you can only just afford. The other costs may catch up with you sooner than you think.
“Remember, as you start out on your car ownership journey, to buy the car you can afford, which might not be the car you really want right now! Ask questions and make sure you understand exactly what you need for the best chance to get approved for vehicle finance, have a realistic picture of what you can actually afford, and consider all the options before deciding on a new versus a used car. Doing all the homework upfront before buying your first car is recommended and could save you some of your hard-earned cash in the long run too,” advises Mogatusi.
Content and images supplied via MotorPress