Buyers should consider pre-owned
SOUTH Africans looking to buy new cars may soon be faced with escalating vehicle prices and additional interest rate increases‚ a double blow that could see many looking to the pre-owned car market, according to Standard Bank.
But‚ says Glenn Stead‚ head of products for vehicle and asset finance at the bank‚ instead of considering pre-owned cars negatively‚ choosing this option could be one of the wisest financial decisions many people could make.
"There is no doubt that the days of low interest rates and great offers from manufacturers‚ who have historically competed to sell new vehicles in a buyer's market‚ are drawing to an end. The low value of the rand is placing pressure on the cost of imported vehicles and parts. Locally‚ interest rates are on the rise as the Reserve Bank uses this mechanism to keep inflation under control.
"Inevitably‚ this means an increased sticker price on new vehicles‚ and as such motorists are advised to consider buying pre-owned vehicles‚" Stead said.
One of the major benefits of buying a pre-owned vehicle includes letting someone else take the depreciation hit for you. This means the chance to save significantly on repayment and interest costs while also being able to enjoy the benefits from existing service and maintenance plans.
It also ensures freedom to consider various purchase options and being able to shop around‚ not just for specific makes and models‚ but also the best value for money.
By the time it is one year old‚ the value has generally dropped by up to 30%. After the first year the depreciation rate slows to about 10% per year.
"Translating this into financial benefits means that you can buy an almost-new car or a demo model with low kilometres at a vastly reduced price. Your monthly repayment is considerably lower and your interest costs will be reduced‚" Stead said.
Most new cars are sold with service or maintenance plans. Options available vary‚ but some plans can run up to 120000km or five years (depending which milestone is reached first).
"This is a wonderful benefit if you are buying a pre-owned vehicle. The first owner could have paid R40000 or more for a service or maintenance scheme. You get the benefits of the remainder of the contract. Best of all‚ you can buy a car from a dealer and have access to the car's service history – a must-have when buying pre-owned‚" Stead said.
There are further considerations when opting for a pre-owned car. First‚ it is more difficult to finance a car that is more than 10 years old although some institutions including Standard Bank do offer finance assistance with classic cars that meet certain criteria. Banks will not finance vehicles that have been stolen and recovered and finance will not be approved for cars that have been in accidents‚ written-off by insurance companies and then rebuilt. This is because of the risk of poor workmanship and potential future failure of these vehicles.
Buying a car from a private owner and having it financed is also possible.
The deal will take longer‚ but the new owner will benefit because the bank will do some of the vital legwork for you. This includes scrutinising the history of the vehicle to make sure it can be legitimately sold.
A bank will also insist on a thorough mechanical and physical vetting to ensure the vehicle's engine and drivetrain are mechanically sound‚ and that it has not been involved in any major accidents.
"With many cars being sold with remaining warranties and service contracts‚ and with the thorough vetting process that takes place‚ the old belief that buying pre-owned means buying someone else's problems does not really apply to today's market.
"Buying pre-owned in today's turbulent economic times could be the best decision you can make‚" says Stead. – BDlive
