While some choose to buy a house as their first step, others choose to buy a car. No one should dictate, which option to go for. Follow your heart’s desires. However, be aware that buying a car can be a daunting process, especially if you are a first-time buyer. Before you go ahead and make your purchase, do the following:
Create a practical budget
The most important part of buying a car is knowing what you can afford. If you are planning to buy your car cash, your budget will be determined by how much you have saved. However, if you plan to finance it, then you will need a loan to buy a car. Once you take a loan, you need to make sure that you will be able to afford the repayments every month. Another option is getting financed through a car dealership.
To calculate how much you can afford to pay each month, you need to draw up a budget. This will let you see all your expenses alongside your income. You’ll know exactly how much money is coming in monthly, how much is going out, and how much is left over after the bills are paid.
Check your affordability
Affordability is not just about how much money you can afford to spend right now, it’s also about how much money you can manage to pay for a monthly repayment for a car.
For example, if your budget says you have R10,000 left after all expenses, it does not mean you can buy a car that costs R10,000 per month. You also need to consider fuel, car maintenance, insurance as well as any other ad hoc or unexpected expenses that come up. All of these costs should add up to less than your total budget which also means leaving room for any increases in these expenses.
According to Business Tech, you need to; “remember [that] insurance premiums can increase each year, tyres may need to be replaced and fuel costs are also on the rise. It is therefore best to look at your budget over five or six years; the most popular contract terms for car loans.”
Always be insured
Never buy a car without insuring it, that applies for cars bought cash. “In the event of an accident, a comprehensive insurance policy will pay for damages incurred, even if you are at fault. If the car is uneconomical to repair, also known as a “write-off”, or if it is stolen, the insurance company will settle the remainder of the loan balance with the bank. This means you don’t have to worry about paying for expensive accident repairs – or paying off a loan for a car that you can no longer drive.”
Find the right deal
Before you decide on the car, do your research. Go for test drives, don’t just buy a car based on other people’s experiences alone. If you are getting a second-hand car, take an expert with you, someone who will inspect it for you. Remember to ask yourself practical questions in this process:
- Is this car economical on fuel?
- Will I be using it for work purposes?
- Do I want a new or used car?
- If used, how many kilometers?
- Does the car have a service or maintenance plan?
- Do I want a big or small car?
- How long do I plan to keep it?
- Is it manual or automatic?
Consider the deposit
When buying a car or a house, having a deposit is crucial. Paying a deposit will lower your monthly instalment or help you settle the loan sooner. By paying a deposit, you borrow less money from the bank, which also means paying less in total interest. This way, you also avoid having a balloon payment.
A balloon payment is a large payment that needs to be made at the end of the finance term. “Generally, balloon payments can be between 5% and 60% of the total purchase price, and it can be useful for helping to lower your monthly instalment,” says WesBank.
For example, if you want to finance a car of R200,000 with a 10% balloon payment, then you will pay off R180,000 over the agreed period and make a R20 000 payment at the end of the contract term.
“If you do opt for a balloon payment you should remember to save up to make that large payment. Alternatively, you can sell the car and use it to settle the balloon payment, or you can use a new loan to pay off the balloon payment,” WesBank said.
The bottom line
Whichever one you choose to buy first, make sure you at least have saved enough for a deposit. When buying a home, ensure that you have saved enough for the attorney and transfer fees. You can get away with not paying the attorney fees if you buy a development as opposed to a pre-owned home. Before committing to anything, make sure you have done proper research and that you have consulted the relevant experts.
