Co-founder of Naked Insurance Ernest North<\/em><\/figcaption><\/figure><\/div>\n\n\n\u201cThink about your car and how you will pay for it in the context of your financial plan, including how the way you finance your car will impact your budget, lifestyle and long-term wealth,” he said.<\/p>\n\n\n\n
North has provided South Africans with valuable information to assist them in making informed decisions when purchasing a car and deciding on the payment method. <\/p>\n\n\n\n
Whatever you decide, don\u2019t forget to budget for the full cost of car ownership, warned North. <\/p>\n\n\n\n
“In addition to the costs of the car itself, you\u2019ll need to provide for fuel costs, insurance, maintenance and repairs. <\/p>\n\n\n\n
“If you\u2019re financing your car, it\u2019s wise to budget for the interest rates to increase. Also, don\u2019t forget to get insurance for your new car. This will protect your investment,” he said. <\/p>\n\n\n\n
North outlined the five available options for buying a car and highlighted the advantages and disadvantages of each option, which are listed below.<\/p>\n\n\n\n
\n\n\n\nPay cash for your car<\/strong><\/p>\n\n\n\nThe simplest way to buy a car is to pay cash for it if you have the money available in your bank account.<\/p>\n\n\n\n
You simply EFT the money over to the dealer or the person you\u2019re buying from, and you\u2019re good to go. However, most people can\u2019t afford to pay cash for a car. And some would prefer to get a nicer or newer car than they can afford to purchase outright.<\/p>\n\n\n\n
Pros<\/strong><\/p>\n\n\n\n\n- You\u2019re not paying interest on a depreciating asset.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- You don\u2019t need to worry about upcoming balloon payments.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- There are no constraints on your use of the car, such as mileage limitations.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- You are not tied to a financing period, and not forced to rethink your ownership of that car at a set point in time.<\/li>\n<\/ul>\n\n\n\n
Cons<\/strong><\/p>\n\n\n\n\n- It limits your choice of vehicle to what you can afford to pay upfront.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- Paying cash for your car ties up money you might want to use for other purposes like a deposit for a house (in investment terms, this is called \u201copportunity cost\u201d, i.e. you\u2019re losing the opportunity to use your money elsewhere).<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- You probably won\u2019t be able to enjoy that new car smell as often as someone who leases or finances their vehicle.<\/li>\n<\/ul>\n\n\n\n
TIP:<\/strong> If you\u2019re a bit more established, one option you might consider is drawing money from your access bond and then using it to pay cash for the vehicle. <\/em><\/p>\n\n\n\nInterest rates on home loans are generally far lower than for car loans and you can pay back what you borrowed as and when it suits you. Make sure to do your research or speak to a qualified financial advisor to find out if this could benefit you, said North. <\/em><\/p>\n\n\n\n
\n\n\n\nCar loan<\/strong><\/p>\n\n\n\nIf you can\u2019t afford to pay cash for a car, you could apply for a loan from the bank or car dealer that you pay back over four to five years. <\/p>\n\n\n\n
Each month, you\u2019ll pay off some of the loan plus interest. The exact monthly repayment will typically go up and down with the interest rate. With a loan, you generally also pay a deposit \u2013 the higher the deposit, the less interest you\u2019ll pay over time.<\/p>\n\n\n\n
Pros<\/strong><\/p>\n\n\n\n\n- Makes a car affordable even if you don\u2019t have enough cash on hand.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- Allows you to buy a car that is a bit nicer and more reliable if you\u2019re strapped for cash.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- You can drive the car as much as you want without worrying about mileage limitations.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- Once the loan term is over, the car is yours to sell, keep, or trade in.<\/li>\n<\/ul>\n\n\n\n
Cons<\/strong><\/p>\n\n\n\n\n- Interest payments mean you\u2019re effectively paying much more for the same car. If you finance a R250,000 car with a 10% deposit over five years at a 13% interest rate, you\u2019ll pay an eye-watering R82,000 in interest over the full term.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- If you want the contract to end early, you usually need to pay a penalty.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- Be mindful of a balloon payment. If you\u2019ve chosen to go this route \u2013 you\u2019ll need to find a substantial chunk of change at the end of the loan period. <\/li>\n<\/ul>\n\n\n\n
\n\n\n\nLease-to-buy<\/strong><\/p>\n\n\n\nLease-to-buy agreements provide for you to buy the car for a guaranteed future value when the lease period is over or to start a new financing deal. Generally, you\u2019ll be able to pay a deposit upfront, which reduces your monthly lease payment as well as the future purchase price.<\/p>\n\n\n\n
Pros<\/strong><\/p>\n\n\n\n\n- Monthly payments may be lower than buying a vehicle on conventional finance.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- Lease-to-buy options give you access to a car if traditional financing isn\u2019t successful.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- This approach might enable you to get a new car every four to five years.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- Some deals include servicing and insurance in the monthly cost. <\/li>\n<\/ul>\n\n\n\n
Cons<\/strong><\/p>\n\n\n\n\n- The contract is subject to mileage limitations and other care requirements. If the car is not in good condition, you will pay a penalty at the end of the lease period.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- There are usually significant penalties for breaking the lease agreement early.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- Lease-to-buy agreements are not very flexible and you have to make use of a specific finance provider.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- You will usually need to refinance or pay a hefty final balloon payment if you would like to take ownership of the car at the end of the term.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- If you always lease your cars, you will never own a vehicle of your own or get a break from paying a large sum of money each month for access to a car.<\/li>\n<\/ul>\n\n\n\n
\n\n\n\nCar subscriptions<\/strong><\/p>\n\n\n\nCar subscriptions are relatively new to the market, though South Africans don\u2019t have as many options to choose from as consumers in other countries. <\/p>\n\n\n\n
The idea is that you can \u2018subscribe\u2019 for access to a car the same way you pay for Netflix. Planet42 is one example of a company that offers second-hand cars on subscriptions. <\/p>\n\n\n\n
It\u2019s usually a month-to-month contract, and you can return the car at any point after six months, paying only a one-month cancellation fee. <\/p>\n\n\n\n
There is no fixed term for how long you pay the monthly rental fee. Depending on the provider, the subscription might include one or more of the following: insurance, maintenance, and servicing.<\/p>\n\n\n\n
Pros<\/strong><\/p>\n\n\n\n\n- Offers access to a car if you have a bad (or no) credit record and can\u2019t get financing.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- It\u2019s a much more flexible option than traditional financing.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- You don’t have to worry about financing or trade-in values.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- An all-inclusive monthly fee makes it easy to see what you\u2019re spending on your vehicle.<\/li>\n<\/ul>\n\n\n\n
Cons<\/strong><\/p>\n\n\n\n\n- The monthly cost may be higher than leasing a car or buying one outright.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- Some providers might have a mileage cap.<\/li>\n<\/ul>\n\n\n\n
\n\n\n\n Long-term rental<\/strong><\/p>\n\n\n\nLong-term rentals are similar to subscriptions, but there is usually a set maximum rental term. Many of the same companies that offer short-term car rentals (like Avis or Europcar) also offer options to rent for more than 30 days at a time at a preferential rate.<\/p>\n\n\n\n
Pros<\/strong><\/p>\n\n\n\n\n- It\u2019s perfect if you only need a car for short-term use. For example, if you\u2019ll be in a different city for three months for work, don\u2019t need a car for six months while you\u2019re seconded overseas, and then want one for a month-long road trip, you can rent a car where and when you need it.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- The rental bill stops when you return the car after the agreed rental period. <\/li>\n<\/ul>\n\n\n\n
Cons<\/strong><\/p>\n\n\n\n\n- Long-term rental is usually the most expensive way to pay for access to a car.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- You have less control over the type of car you will drive. A rental agreement is likely to be for a \u201cVW Vivo or similar\u201d. <\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
\n- Mileage restrictions generally apply.<\/li>\n<\/ul>\n\n\n\n
\n\n\n\nRead: South Africa\u2019s used-car market \u2013 the hottest brands, and what people are paying<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"Naked Insurance’s Ernest North breaks down the five options for buying a car in South Africa. <\/p>\n","protected":false},"author":10,"featured_media":720186,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11119],"tags":[12513,853],"class_list":["post-720132","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-motoring","tag-naked-insurance","tag-south-africa"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/720132","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=720132"}],"version-history":[{"count":5,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/720132\/revisions"}],"predecessor-version":[{"id":720688,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/720132\/revisions\/720688"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/720186"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=720132"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=720132"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=720132"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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