As we come to the end of the youth month, I want to share with you the critical considerations when you are buying a car. I feel this is important because many people are driving cars that are far beyond their affordability and once you have bought a car you cannot afford, it is near impossible to reverse the decision.
- Do NOT buy a car on residual or a car with a balloon payment. If you do NOT have enough money to put down a deposit before you buy the car, why do you think you will have the money for the balloon at the end of the repayment period? By buying a car with a balloon payment, you are putting yourself into a trap where you might end up having to roll forward the balloon into a new car. I won’t get into all the details here save to say you are putting your finances at risk and you will end up buying gap covers and might get into a mess. Buying a car on balloon simply means you cannot afford that car
- Do NOT let your car repayments be higher than 20% of your net income otherwise you will have little money to live on month to month
- Do NOT take credit life on your car because once your car is paid up, all the monthly premiums you were paying would be money down the drain. I saved myself R48 000 by refusing to take credit life when I was buying a car.
- Save for a deposit for the car you want to buy, at least a 10% to 20% deposit. This is also a good way to test if you can afford the car repayments
- Remember that the cost of insuring the car is one of the highest costs of owning a car. Take note that some cars have higher insurance costs because they are the hijackers favourites. Get a quote on the insurance before you even buy the car and remember that the younger you are, the higher your insurance costs
- Buy a fuel efficient car
- Consider buying a low mileage car from an auction to get a good deal – some of the car dealerships buy their cars from auctions after all
- Do shop around for the best insurance rates
- Read chapter 4 of my book From Debt to Riches entitled Is Your Car Driving Your Destiny?, for more tips on buying a car
If you are buying your FIRST CAR, ensure that the colour of your is easy to repaint or paint over in case of an accident.