Buying a car in South Africa? How you choose to pay for it can make all the difference. Here's a quick guide on how to navigate your options based on your financial situation.
1. When you have the money, you can pay cash upfront:
If you've saved enough to buy a car outright, you can walk into the dealership, make an EFT, take the keys, and drive off. Simple and straightforward. No debt, no repayments.
2. When you don’t have the cash on hand, here are your options:
Traditional bank financing (For both new and used cars):
This is where you take out a loan, typically a 4-5 year deal. You’ll repay the loan with monthly instalments that can vary based on interest rate changes.
Things to keep in mind:
- Paying a larger deposit can reduce your loan amount which saves you paying interest.
- Opting for a balloon payment means paying a large sum at the contract's end.
- Some contracts offer a 'guaranteed future value', which is an agreed price the dealership will pay to buyback the car at the end of your contract.
- If you finance a car, you are the legal owner, so you’re free to drive it as far as you want. The mileage limitation is optional and only applies (together with other service and maintenance and care requirements) if you want the “guaranteed future value” to apply.
Lease-to-own:
New Cars: Many original car manufacturers offer leasing deals – think BMW, Volkswagen, Toyota. You can lease with the option to buy later or when your lease term is up, you can simply give the car back. When leasing you can pay a deposit, which will reduce your monthly payments and the future purchase price (if that’s what you want).
Used Cars: Leasing a used car is similar to new car leasing but it may differ slightly in terms. Contracts are often flexible and month-to-month. You will have to cover maintenance but insurance is typically included in the lease.
Long-term rental:
This route is ideal for those not wanting to commit. Long-term rentals are usually for a used car. There’s also no option to purchase, which is perfect for sporadic needs or those fond of frequently switching vehicles.
So which option best suits you?
To decide, ask yourself these questions:
- Ownership importance: Is owning the car crucial for you, or are you okay with just using one?
- Change frequency: Do you prefer driving a new car every few years or sticking to one for longer?
- Future finances: Do you expect a significant increase in your income soon or are you expecting a bonus from a side hustle that will make a balloon payment more feasible?
- Investment options: If you have savings, might there be better investment opportunities than spending on a car?
- Credit status: Is your credit history strong enough to get a good interest rate on a loan or lease deal?
Purchasing a car is a big decision. Whether you're buying or leasing, it's important to pay for it in a way that’s more aligned with your financial health. And because it’s not exactly a cheap purchase, you should consider comprehensive car insurance to protect your new asset – with Naked you can get a car insurance quote and buy cover in under three minutes. Happy car shopping!
