Are you prepared to finance and own a car?

August 17, 2018

Owning a car opens up so many doors for people. You finally have the freedom to go wherever you want to, whenever you want to. You can add it to your CV and apply for the better jobs that are a little further out from where you live and they’ll be more inclined to consider you for the position knowing you have your own transport and aren’t reliable on temperamental public transport systems.

You can plan your day’s to the minute when you have total control of where you will be throughout the day and you become fully responsible for making your meetings on time, running your own errands and assuming the responsibility that comes with owning and driving a car.

Credit score

To start the financing process, you first need to make sure that your credit score is looking good. And if it isn’t, you may need to hold off on financing a car until you can sort it out because the lender will look at your credit history and credit score. Depending on how it looks, you may not have your loan approved as it speaks to your ability to handle and pay off debt.

Another reason to work on your credit score for a loan is that it will have an effect on the proposed interest rate for the loan. The higher your interest rate, the more money you’ll end up paying for your car and the greater the chances of getting stuck in an upside-down car loan where you’re paying for more than what the car is worth.

Car financing

When it comes to the car finance process itself, there are a few things you need to consider.

  • Budget: You can’t browse without a budget. That’s a quick way to fall into more debt than you can handle. Before you start browsing, set a budget and stick to it. To get a rough idea of what you’ll likely be paying every month, use a car loan calculator and you’ll quickly realise if that’s a monthly instalment you can afford.  
  • Down payment: If you want to reduce the total vehicle and loan cost, you need a large down payment on your new car. Save as much as you can and use the trade-in value of your current car to contribute to your deposit (if applicable). Aim for a down payment of at least 20 percent of what your new car costs. The more you pay in cash, the more you’ll save on interest and the quicker you’ll pay off your loan and be out of debt.
  • Repayment term: When you work with an instalment calculator, you’ll have to set the repayment term over which you’ll pay off the loan. The quicker you choose to pay off your loan, the more you’ll be required to pay each month, and the longer terms mean less each month. But, while you might be paying less in an instalment over 72 months than 60 months (which seems more “affordable”), the total cost of your loan will increase as there is more interest accumulated.  
  • Insurance: And don’t forget about insurance. It won’t be in the advertised or included in any instalment calculation, but you won’t be allowed to drive your car off the dealership floor without any car insurance. And that can be around a couple of hundred or thousand rands extra every month.

When you take out a loan, your interest rate, down payment and repayment term will all affect how much your car’s going to cost you beyond the advertised price from the dealership. Car finance is an expensive venture but if you can afford it, it’s definitely worth it.

On the road costs

Before you think that the expenses stop there, you need to consider “on the road” costs after the car finance costs. These are expenses on fuel as often as you may need it, servicing every 15 000 km, repairs should they arise, new tyres when the tread wears out, upgrades for personal entertainment, fines from traffic violations and so on.

You will always be paying for your car in some way, even after you’ve paid off the loan. For that reason, it’s important that you take good care of your car to make it as durable as possible.

Caring for your car

Here are some of the best ways you can take care of your car to ensure it lasts a long time:

  • Garage checks: Oil, water and tyre pressure can all be checked (for free) every time you stop at a garage to fill your fuel tank. It takes an extra five minutes and can keep your car performing.
  • Stick to services: A service plan is designed with your car’s best interest in mind. Minor services are there to clean your filters, change your oil and ensure that your car is running as it’s meant to.
  • Drive responsibly: Road rules are there for a reason and sticking to them is one of the best things you can do for yours and your car’s safety.

With all of this in mind, are you sure you’re prepared to finance and own a car?

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