Advice with financing first car

Zenbaas

Zenbaas

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Hi
So I have finally decided to look into purchasing my first car and have found a lot of the information a bit overwhelming at times. I have searched through the threads and come across some useful information although some of my questions haven't been addressed. The price bracket for the car I'm currently looking at is roughly R220k, hopefully a little bit less. The dealership that is currently looking for the car offers their interest rate at 15%. Now this is where I'm completely clueless. What is the best way of finding out what the banks are willing to offer for their rates..? Which ones are normally the best or is it a pretty much a fixed affair at the moment....?

Also is it best to put down the 10% deposit and then after starting payments to put any extra money in to reduce the monthly repayment rates even further(I read someone who posted something to this extent last year sometime but I'm not sure if you can even do this..?)..?

Like I said this is something I really know very little about so I would really appreciate input from everyone.
Thanks
 
Easiest way is to a otp and see what you get. When I got my car I did a otp and hyundai to see what I'd get. They wanted to give me 10%. When I decided on a car a wanted, a Honda, I told the finance lady I wanted 9.5%. I just took a shot in the dark and ended up with 9.75%.

So basically try your luck.
 
Right. First car. Is it secondhand or new? (I assume new, and would recommend buying secondhand)

First off, approach the bank your salary goes into each month for finance. It's usually better to "deal direct" with your bank and get preapproval from them that the dealership can work with. Your interest rate would be a whole lot better than they would be able to offer you. You can always push them down (as Qikslver mentioned) a bit by saying you went to a competing bank and/or the dealership offered you 1% less than they did.

The dealership may or may not also try to force you to a fixed interest rate to "protect you" if the interest rate shifts up or down. From what I understand, you're already planning on putting in extra each month, so you shouldn't be too worried if it does go up. But it's up to you to choose that. The interest rate is fairly low currently, and I suspect may go unchanged for a while still, so if you do fix it, just make sure they don't ride you for interest.

Regarding deposit, this will probably be required from you. They factor in your age as well as how long you've had a license for. I had to pay 35% deposit on a new car (R114k value) when I was 23 with my license being less than 5 years old. This will become apparent when you phone your bank for preapproval and you can chat about it over the phone with the agent that is helping you.

If you do pay in extra, it will effectively only make your next monthly installment less. This does mean you'll pay it off faster, or give you a little bit of break if things go awry financially for a month (unexpected expense), but it's not like a house where you'll save a whole lot on compound interest. So it's really up to you. I'd recommend paying the installment as is, because chances are, a few years after you've bought the car, you might want to trade in for a new model.

Having said that, it does take about 3 years before you're in a "positive" balance (unless you buy a piece of **** opel that depreciates 60% or more during that time) for when you do trade in. So keep that in mind.

Also, I would recommend getting a quote on insurance on the car/color/your insurance profile before committing into buying a car, especially new and at an age less than 25. This may or may not change your budget significantly and you may opt for a cheaper option (like going secondhand or lowering the budget from 220k to 130k).

Remember to budget about R400 a month for a tracking system (you can probably get cheaper, but I'm working on what the costs were for me after 4 years).

Then also remember the cost of fuel. Try to figure out how much you'll be driving including any visiting friends/going out stuff. I roughly did 600km a month to work, budgeted for that, but found I did double that visiting friends/driving around/socializing etc.

A new car should come with a maintenance plan. If not, budget about R2k a year for your scheduled check-ups. Also remember you have to fork out about R570 for the license.

Take those figures and add them all up, divide by 12 and you'll see the average cost of your new toy.

This will give you a realistic budget to work with inclusive of everything and you can then approach buying a car with a clearer head. Remember, the dealership is there to make money and sell you a car. They're not your friend (even though they could be friendly) and they don't care if you can't afford what they smeared off on you or how much trouble your new purchase gives you, they got their money and they're off trying to sell another car to someone else.
 
AcidRazor is right. I almost ended with up with a car I couldn't afford as well. Think very carefully. It's a big purchase and definitely take insurance into account.

If you've worked out your budget meticulously and can afford a 220k car, rather get 190k car.

Out of interests sake, what are you looking at?
 
Bear in mind that dealerships get kickbacks from the banks for getting you to sign a credit offer.
These kickbacks are in direct proportion to the interest rate at which they get you to sign. Obviously the dealer will pressure you to sign the agreement that offers the biggest kickback (usually at the highest interest rate).
The kickbacks are often substantial, and thus the dealer can offer you a 'discount' on the price of the car.

Just keep this in mind when getting credit offers from the dealerships themselves. Ask the dealer to show you offers he receives from all the banks
 
Thanks for the advice guys. The car is already secondhand. And by saying "car" I actually mean 4x4. That's the reason that it's still expensive secondhand. Car is a Suzuki Grand Vitara. As for age, well I'm 29. Main account is with Capitec and Cc is with FNB. So will have to see what they say(FNB that is).
 
Zenbaas said:
That's a moerse difference. Was that from a dealership or bank..?
Click to expand...

The dealership told us that only MFC came back to them at 15%. We applied as well with the STD bank. Std bank did delay with their reply. Two days prior to take delivery the FM came back with a revised rate of 12%. We told him to wait but he still put foward the paperwork. An hour or so later STD bank came back with 8%. The idiot of a FM went on to tell us that he cannot change it because the car was ordered on the basis that the finance was finalised with MFC although no paperwork was signed by ourselves. We threw a fit. Somehow things got changed. We obviously opted for STD bank at 8%. We also found out about the commission these FMs get from MFC to push business their way
 
Nicky_G said:
The dealership told us that only MFC came back to them at 15%. We applied as well with the STD bank. Std bank did delay with their reply. Two days prior to take delivery the FM came back with a revised rate of 12%. We told him to wait but he still put foward the paperwork. An hour or so later STD bank came back with 8%. The idiot of a FM went on to tell us that he cannot change it because the car was ordered on the basis that the finance was finalised with MFC although no paperwork was signed by ourselves. We threw a fit. Somehow things got changed. We obviously opted for STD bank at 8%. We also found out about the commission these FMs get from MFC to push business their way
Click to expand...


Hahaha... "Somehow" - he didn't want to lose the kickback on the MFC finance
 
MFC are known for financing people other banks won't, because their risk profile is too high.

Since you are with FNB, try WesBank. Avoid the dealer's finance people, unless you can get your own quotes from banks yourself (it is really easy, don't let the dealership make you think it is so difficult that you need their help). Once you have some quotes, play the dealership against the banks and vice versa multiple times until both refuse to offer you anything less. By doing this, my wife went from 9.5% down to 8.25% interest. 15% interest is way too high. You should be aiming for 10% or less.

A small deposit of 10-20% helps to reduce the monthly installment and interest a bit and also means you will reach the break even point much sooner than 3 years. Consider a small residual of 20-25% if you will not be paying off the entire vehicle and keeping it forever. The residual is seen as the devil by a lot of people. But if you can get more use out of the money you save monthly on repayments, like i do to service higher interest rate debt, it makes sense. I also don't keep my cars past 3 years, so the residual never comes into play.

One thing i will caution you on - I am not convinced that Suzuki has a good resale value, so you may find the car is worth very little when they time comes to trade it in. For this reason, a residual may be a bad idea in your case and plan to not get much out of the car when you sell it.

Otherwise, just use your head and realise that the dealership will try screw you for every cent with lies and half truths. Do your own investigations and show them you are not new to this. Good luck
 
Wesbank and some of the other banks have online applications where you can fill out everything online. I'm not sure about kickbacks for the dealers from the deals they sign... the last car I bought, there was an admin fee of approx R3000 if they applied on my behalf.
As for the res value, that would recommend on how long you're planning to drive the car. If you can afford it easily, don't go for it as you'll have a bigger payout when you sell the car that can go towards a deposit for the next car.
 
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