If you drive a car in South Africa, you will understand the hassle of replacing it. Once you have decided on a make and model, the paperwork begins. Some dealerships will try and rip you off, by adding extra administrative costs to the transaction.
In this instance, I was told that the administrative costs would exceeded R8 000. However, the last time I bought a car, the paperwork cost just R1 500. While reading through the contract, I also noticed that the finance provider wants to charge me a monthly fee, just to manage the account.
Here are some of the traps to watch out for:
Useless Insurance Add-ons
Finance Providers will always try and upsell their products. However, you should ensure that the product on offer will in fact apply to you. For instance, a self-employed business owner wouldn’t benefit from unemployment insurance.
Motor Protection Plans
Many manufacturers offer plans that take care of services or breakdowns, which naturally provides peace of mind. Most plans have a threshold of five years or 60 000 km. So before opting in, you should consider the amount of driving you do. Also, if you plan on replacing the vehicle long before you reach the threshold, you should carefully consider whether forking out the extra cash, which could be as much as R30 000, would be worth it.
This is sold as extra protection in case the car has a major breakdown once it has reached the end of its motor plan. Before signing up for this, you should check what you’re being covered for. Some of these warranties have so many restrictions, they are basically useless.
Balloon or Residual Payments
To reduce monthly repayments on a vehicle, some financing options will have a balloon payment built in to it. This is an amount you will have to repay, as a single premium when you reach the end of your financing term. While many providers give you the option to re-finance the balloon payment, this will require a new credit check, and if your circumstances changed in a negative way, you may be forced to give up the vehicle entirely.
First time buyers are being hit particularly hard. Their interest rates are usually set quite high, and insurance premiums and excesses can be astronomical for the newly licensed. However, the USA trend of leasing vehicles has begun to catch on here in South Africa. Generally speaking, leasing a car is a cheaper alternative. At the end of the lease term, you would have the option to sign a new lease; hand the vehicle back to the dealership, or settle what is known as a guaranteed future value, and take ownership.
With consumers now being spoiled for choice, I suggest you weigh your options carefully before making a decision.