How To Avoid A Debt Crash When Buying A Second-Hand Car
As the cost of living continues to pinch and fuel costs soar, you may be looking to downgrade your car to a used car in Jo-burg that’s more affordable. Before you venture into the second-hand car market, here’s what you need to know:
According to Experian’s Q1 Consumer Default Index for 2021, while home loans and retail loans have shown an improvement, car loans have deteriorated by a substantial margin, from 3.67% in March 2020 to 4.10% in March this year in terms of outstanding debt.
“Reports by TransUnion and National Debt Advisors have echoed these findings and despite the lockdown relief measures put in place by banks to assist cash-strapped borrowers, car repossessions are rising,” says Marc Friedman, chief executive of Weelee.co.za. “Covid-19’s third wave is putting South Africans under even more pressure. To avoid a repossession, cash-strapped vehicle owners need to react promptly and be wise in weighing up the various options available to them.”
Friedman suggests that car owners should not wait until it’s a crisis. “If you think that you might struggle with fulfilling your car instalment obligations, be proactive and start making a plan now.”
Downgrading your car
Budget, budget, budget: Compile a detailed budget with an accurate reflection of your income and expenses. Be realistic and consider the repayments on your car, running costs (fuel), maintenance costs and insurance.
Talk to your creditor: If you are in good standing with your financial services provider (usually the bank), try to negotiate different terms, such as extending your loan duration to reduce repayments. Friedman acknowledges that this may incur more interest, but it is one way to ensure your car is not repossessed. “If you’ve been retrenched, consider using your credit insurance or income protection plan, if you have one, to help you meet your debt obligations,” he says.
Sell now to scale down: Sell your car and scale down to alleviate the financial pressure, saving any surplus for a future deposit or using it to settle other debts.
Don’t accept the first offer: Be savvy when selling your prized possession. Research the going rate for your car properly. You can get a quick valuation from dealers in Johannesburg who sell used cars.
Know the following terms so that you get the most money out of the deal:
Retail price: This is the price of the car when someone buys it from a dealer.
Selling price: Trade-in price plus the dealer’s profit/mark-up. If you sell privately, you will get the retail price.
Trade-in price: This is the price that the dealer will pay you for the car. This will go towards settling your vehicle finance or you’ll receive it as cash for another car.
Book value/blue book value: Dealers may talk of the blue book value – this is the industry-accepted dealer valuation book by TransUnion on which they will base the prices for their cars for sale in Johannesburg, Cape Town, Port Elizabeth and further a field.
Consolidate multicar households: Consider letting go of one or multiple cars to scale down on the number of vehicles and start a lift club within your own family.
Keep running costs more affordable: Friedman says you can do this by, for example, shopping around for a good retail motor industry-accredited provider to service your car professionally, but with original equipment manufacturer parts, which can be cheaper than the more expensive genuine parts.
Lebogang Gaoaketse, head of marketing and communication at WesBank, says the momentum that was being gathered in South Africa’s new-vehicle sales recovery received a harsh blow during July as civil protests tore through large parts of the country. “In addition, the majority of the sales month was spent in adjusted Level 4 lockdown and the ongoing impact of stock shortages was exacerbated by disruptions in the logistics chain at ports. The resulting consequences in business and consumer confidence will continue to challenge the industry’s recovery for months to come,” he says.
However, he says rejuvenation of rental fleets, progress in SA’s vaccination roll-out programme and revitalisation of the economy, in general, are all expected to contribute towards building the SA motor industry.
Buying a used vehicle
Numbers from TransUnion show that South Africans financed about 79,000 used vehicles in the first three months of the year, with lenders financing 2.41 used vehicles for every new vehicle. Despite this demand for preloved vehicles, not every buyer has a good experience buying a used car, meaning that choosing one can be a stressful process. Digital technology has already streamlined much of the process – from researching your car of choice to getting quotes for insurance and financing.
- Calculate what you can afford
Most banks and many car sales platforms such as WesBank or AutoTrader have financing calculators on their sites. You can play around with different financing amounts, deposits, residuals (balloon payments) and interest rates to get an idea of what your car repayments might be.
- Do the research
“Before you even walk into a car dealer, you may benefit from reading reviews about cars, visiting car dealers’ websites to get a feel for pricing, and getting feedback from friends and family about their experiences with their cars,” says Ernest North, co-founder of Naked Insurance. He suggests you start by asking yourself the following questions:
- Which features do you really care about – boot space, fuel efficiency, Bluetooth, electric windows, air conditioning?
- What are the costs of parts and maintenance? What would you typically pay for a service? Remember that parts for a premium brand or a car that isn’t manufactured locally are often more expensive.
- What maintenance issues or faults do other drivers frequently report about the model you’re considering?
- What is the mileage? You ideally want a car with mileage that isn’t too high. A high mileage (more than 150,000km) might mean more maintenance costs and more wear and tear.
- Decide where to buy
North says your best option is a reputable physical or online dealership that can offer you the car’s service history and registration papers for the vehicle you want to buy. Most dealerships that sell new cars from the major brands will often also sell certified pre-owned vehicles.
“While auctioneers may offer some bargains, you will usually be buying voetstoots. Check the terms and conditions before you commit – some auctioneers inspect their cars carefully before the sale and offer quality guarantees. The same goes for buying a car from a stranger via a classifieds site,” he cautions.
- Go through your checklist once you have identified the car you want
- Before you put your money down or sign any paperwork, you should:
- Go for a test drive. Turn off the radio and listen for any strange engine sounds. Pay attention to the handling – does the car drag to one side, for example? It may need a wheel alignment, or it could be a sign of a more serious problem.
- Inspect the car carefully in a well-lit area. “Look for bodywork damage or signs of repainting, check that the interiors look good; switch on lights, indicators and wipers to make sure they work, and open and close the bonnet, boot doors and windows. Don’t be shy of the seller’s thoughts – this is your money at stake,” North says.
- Ask to see the service history.
- Look at the mileage.
- Ask if the car has been in an accident.
- Use AutoTrader’s Vehicle Check or Lightstone Auto to find out if the police have any interest in the car or if there are any accident reports involving the car. You will need the car’s VIN number; AutoTrader charges R99 for this service.
- If you are buying privately rather than through one of the major dealerships, it could be worth asking a mechanic to have a look. You can book through Dekra Automotive to do this.
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