Buying a new car is always exciting. In these days of tight household budgets and increasing interest rates it pays to remember that, after a house, a car is probably the most expensive purchase anyone can make. The decision to buy a car should therefore be carefully considered, advises Standard Bank.
Glenn Stead, Head of Product: Vehicle and Asset Finance at Standard Bank, says that when a new car purchase is being considered, you should also be aware of what to do if your ‘dream wheels’ repayments ever threaten to become a nightmare.
“When you see car payment problems looming, don’t hesitate to contact your bank immediately, as there are a variety of ways that you can be helped. These vary from arranging repayment holidays for a few months if problems are temporary through to rescheduling payments at a lower monthly cost to make them fit into your budget.
“People often delay approaching their bank as they believe that the standard 60 month repayment period is the maximum period over which they can legally pay off a vehicle. The fact is that there is no legal limit on the duration of a car loan. A bank can extend the term of the loan period to meet the distressed customer’s needs. Often an extended repayment period that reduces the monthly cost of the vehicle is enough to ensure that ownership continues,” says Mr Stead.
Making sure that you buy a vehicle that suits your ability to repay a loan depends on several factors. The most important of these are:
- Knowing what you can afford
Check your personal monthly budget carefully. Make sure that you know how much money you have left every month after your main expenses are paid. Match what you can afford to pay to the costs of cars available.
- Remembering to plan for hidden costs
Buying a car with vehicle finance means the bank will demand that the vehicle is fully insured. Find out what this cost is likely to be. Add in the monthly costs of fuel, toll fees, and other extras such as a service or maintenance plan. Make sure that you can afford these over and above the main vehicle finance instalment.
- Thinking about interest rates
The recent increase in interest rates could be the first in a series of hikes in the months to come. Buying to the absolute limit of your budget could result in not having the money you need to cover the instalments if interest rates rise further.
- Investigating fixing your interest rate for the length of the loan
Car repayments can be fixed for the period of a loan. Because the bank would take a long-term view of rates, the monthly payment will be higher than that of a loan which is linked to movements in the interest rate.
The advantage of fixing the rate is that you know exactly what your car will cost you every month over the loan period. The potential for a nasty surprise is avoided.
“These days, cars can be bought without having to pay a deposit. Although a deposit makes buying the car of your dreams easier, it also has financial implications. If you don’t pay a deposit the capital amount being paid am higher which attracts interest. You will therefore pay a higher monthly instalment,” says Mr Stead.
”If you are in a position to pay a deposit on a vehicle, it is wise to do so. This means that you will have lower monthly repayments, and you will also pay less interest.
“Finally, always bear in mind that it is best to seek help the moment you foresee repayment problems ahead. At Standard Bank we regard ourselves as being our customers’ partners. Part of this commitment is to provide solutions around adapting payment plans where this is possible,” says Mr Stead.