I bought a car a few years ago, and it was exciting (“yay, new wheels!), and terrifying (“What on earth do I get? Can I afford it? Will I get a decent deal?”).
It was my first navigating the process mostly solo, so I had to learn quickly about how to find the best deal, and navigate the finance process.
If you see yourself needing to buy a car in the new year, here are some tips to help you.
Save up for a deposit
The first smart tip for every car buyer is to save up for a deposit. Even if you’re planning on applying for a car loan, it’s advisable to have a deposit. Although lenders don’t make this compulsory when applying for a car loan, it can help you, as the buyer, in the long run, as you’ll have smaller monthly payments, and you’ll be able to pay it off sooner.
If you have a car currently that you’re selling, the money from that sale can be used as the deposit.
Check your credit score
You should check your credit report yearly, especially when you’re planning on applying for a loan. Your credit history is important to lenders – they want to see how you have managed your other loan terms, whether you’ve filed for bankruptcy, and how much debt you currently have.
Your credit score will determine if you get financing, and how much, so best you try to improve your score before applying for finance – whether it’s rectifying any mistakes that have occurred, or paying off any debts that might be lowering your credit score.
Shop around for the best car deal
It’s always helpful to look around for a vehicle before getting finance. This will help you get an idea of the loan amount you will need. But, looking around doesn’t mean you should go to car dealers, as they have a way of making you purchase a car that you don’t need.
Car dealers are trying to make sales, so, to avoid this awkward human interaction, why not take a few hours from your day to browse the internet. Online, you can see what car brand works for you, what specs you’re interested in and the standard price of the specific vehicle.
Once you decide on a vehicle, you can look at the vehicle’s value with a car value calculator online. This will help you get an idea of how much the car is worth so you aren’t getting overpriced, and you’re getting a good deal.
Always test drive a car, and try to get someone to accompany you so that they can test the car as a passenger in the front and the back. Take it on a highway and quiet roads, and check the car thoroughly.
Go to the lender when you’re well
For most people, buying a car in cash is unrealistic, and this is why car finance in South Africa and all over the world is so prevalent. But, before going to a lender and filling in the car finance application, you need to do your research.
Being prepared will ensure that you stand a higher chance of getting pre-selected for financing. So, make sure you have an idea of how much the car you want is selling for. Know your credit score, as having a good score always helps as it can ensure you a lower interest rate.
Apart from the lender’s requirements, having a deposit and good credit score can help better your chances. Nowadays, you no longer need to go into a branch to get your loan application processed. Once you’ve done a substantial amount of research, you can apply for vehicle finance online.
Lenders also have vehicle finance calculators on their website that can help you get an idea of how much you will need to pay per month, the car interest rate and term loan. Although this is only a guideline, it can help give you an idea of how much you will pay upon loan approval.
Try to avoid long-term loans
Having a long term repayment plan can be a very slippery slope. On the one hand, your monthly instalment will be lower. But, on the other hand, you will have a higher interest rate, which isn’t ideal.
Lenders now offer term loans for up to 72 months, and although that may sound appealing, you don’t want to be stuck in a car loan for six years. So, a smart tip would be to rather have a higher monthly payment for a shorter time with less interest.
Be aware of the additional costs
When it comes to cars, there are many hidden costs involved, such as on-the-road charges, car insurance, service plan, warranties, car part replacements and fuel consumption that need to be considered. Therefore, it’s even more important to:
- Browse around for good car insurance deals that are within your budget.
- Purchase a fuel-efficient vehicle.
- Browse and choose a car that has easily accessible replacement parts, as this lowers the cost for repairs. A car with inaccessible parts can be more expensive as they might need to ship them from overseas, adding to the price of repair parts.
- Find out what the total cost of extending your warranty will be if you’re buying a second-hand car. That way, you can cover yourself for any mechanical issues that may arise in the future.
- Find out how much your service plan will cost you prior to purchase.
Don’t forget to read all the fine print, and ask as many questions as you can. I sometimes feel intimidated and I’m not comfortable asking questions because I feel “dumb”, but that’s not helping me at all.
Wishing you a smooth car-buying journey!