Car Repayments and Installments

[vorman]

First time car buyer, require advice. Looking at car around R130K

Firstly, rule of thumb, car repayments should not exceed 30% of NETT Salary, am i right?

Secondly, put a deposit or not?

Thirdly, would you still contribute to investments over this period? For eg, i have about 12% of salary going into investments every month automatically. Should this be stopped and rather contribute to the repayments to decrease interest?

 

[Brontosaurus]

First time car buyer, require advice. Looking at car around R130K

Firstly, rule of thumb, car repayments should not exceed 30% of NETT Salary, am i right?

Secondly, put a deposit or not?

Thirdly, would you still contribute to investments over this period? For eg, i have about 12% of salary going into investments every month automatically. Should this be stopped and rather contribute to the repayments to decrease interest?

Here's my 2c. I work in finance.

1. If you cannot afford the car without a balloon residual over a period of 60 months or less, you cannot afford the car. Your individual standard of living will dictate what you can afford. However no institution will grant you finance at, for example, 50% of your nett.

2. A deposit is always recommended in that it save you on future interest and can assist somewhat in reducing your interest rate. However, this all depends on the interest rate you'll get vs the return you'll get on investing the money. With the economy in the poor state it is, I would recommend the deposit.

3. What is the return on your investments? Unfortunately a little more info is needed regarding what your investments are. If you're putting into tax free, I would continue to do so. If it's an RA, I would continue to do so. If it's your own personal basket of investments, you need to look at the returns you're getting vs the interest levied on the vehicle finance; same principle as number 2 above.

A few extra tips:

- Variable vs Fixed interest rate: a fixed interest rate gives peace of mind knowing how much you'll pay, but they'll fix your interest at a much higher rate than what they'll offer you on a rate linked to prime.

- Check insurance values for your car and make sure the market value insured is always greater than the outstanding capital owing on your vehicle.

I hope this helps.

 

[Gtx Gaming]

First time car buyer, require advice. Looking at car around R130K

Firstly, rule of thumb, car repayments should not exceed 30% of NETT Salary, am i right?

Secondly, put a deposit or not?

Thirdly, would you still contribute to investments over this period? For eg, i have about 12% of salary going into investments every month automatically. Should this be stopped and rather contribute to the repayments to decrease interest?

Rather pay the car off asap, unless your investments do really well.

Not sure of the 30% rule, I recently applied for car finance. The total financed was R180k, they told me I would only need to earn R15900 before deductions to able to get approved.

Don't pay a deposit, rather finance the full amount . You sometimes get better rates if you finance the full amount, just pay in the "deposit" money after you have the car to reduce the amount you owe.

 

[Werfetter]

First time car buyer, require advice. Looking at car around R130K

Firstly, rule of thumb, car repayments should not exceed 30% of NETT Salary, am i right?

Secondly, put a deposit or not?

Thirdly, would you still contribute to investments over this period? For eg, i have about 12% of salary going into investments every month automatically. Should this be stopped and rather contribute to the repayments to decrease interest?

What kind of investment are you talking about?

Yeah you generally wont get a loan if the value of the repayments are more than 30% this does however not mean go and buy a car that expensive. The lower the better. My current repayments are at 9% and honestly I very nearly bankrupt myself a while back because I tried to buy a car at closer to 30% of my salary. Remember to consider the insurance costs as well which could end up killing you.

As far as buying advice goes.
- Balloon payments are the devil. STAY AWAY!
- Shop around the best interest rates.
- Try and keep your premiums as low as possible and pay it off as quickly as possible.

 

[vorman]

What kind of investment are you talking about?

Yeah you generally wont get a loan if the value of the repayments are more than 30% this does however not mean go and buy a car that expensive. The lower the better. My current repayments are at 9% and honestly I very nearly bankrupt myself a while back because I tried to buy a car at closer to 30% of my salary. Remember to consider the insurance costs as well which could end up killing you.

As far as buying advice goes.
- Balloon payments are the devil. STAY AWAY!
- Shop around the best interest rates.
- Try and keep your premiums as low as possible and pay it off as quickly as possible.

Unit trusts investments. 2 of them.

Why are balloon payments the devil?

 

[vorman]

Here's my 2c. I work in finance.

1. If you cannot afford the car without a balloon residual over a period of 60 months or less, you cannot afford the car. Your individual standard of living will dictate what you can afford. However no institution will grant you finance at, for example, 50% of your nett.

2. A deposit is always recommended in that it save you on future interest and can assist somewhat in reducing your interest rate. However, this all depends on the interest rate you'll get vs the return you'll get on investing the money. With the economy in the poor state it is, I would recommend the deposit.

3. What is the return on your investments? Unfortunately a little more info is needed regarding what your investments are. If you're putting into tax free, I would continue to do so. If it's an RA, I would continue to do so. If it's your own personal basket of investments, you need to look at the returns you're getting vs the interest levied on the vehicle finance; same principle as number 2 above.

A few extra tips:

- Variable vs Fixed interest rate: a fixed interest rate gives peace of mind knowing how much you'll pay, but they'll fix your interest at a much higher rate than what they'll offer you on a rate linked to prime.

- Check insurance values for your car and make sure the market value insured is always greater than the outstanding capital owing on your vehicle.

I hope this helps.

Investments are unit trusts. About 8%return pa.
I really can't even guess my loan interest rate as I had no loans before. I do have a credit card and some basic accounts. Telkom, dstv, isp etc.

 

[Friedpet]

8% is nothing. Rather pay off the car faster. Interest saved will be much higher than 8%.

 

[Werfetter]

Unit trusts investments. 2 of them.

Why are balloon payments the devil?

Because they put you in a situation where you are buying a car you really cant afford. You have to refinance after the loan period has lapsed because there is still a large amount of the cars cost outstanding. Unless you plan on having the balloon amount cash at the end of the finance period to complete the financing of your vehicle it will cost you in the long run.

If 8% is the current return it would be more cost effective to pay you car first as your interest here could easily be as high as 14%. You would effectively be saving a lot of money by paying off the vehicle earlier by adding the amount going into the unit trusts to pay off the car earlier.

 

[Brontosaurus]

8% is nothing. Rather pay off the car faster. Interest saved will be much higher than 8%.

Yeah; this.

Loan interest rate will be given to you once it's approved in principle. If you get less than prime +1%, I'll eat my fingers.

So you're better off paying the car off faster.

Another thing to bear in mind is the fees structured into your unit trusts, which you'll effectively forgo should you not contribute, thus an even better reason to pay off the vehicle.

Just be disciplined enough to either increase your vehicle payments, or continue investing again when your salary increases.

 

[Ntobekoo]

Rather pay the car off asap, unless your investments do really well.

Not sure of the 30% rule, I recently applied for car finance. The total financed was R180k, they told me I would only need to earn R15900 before deductions to able to get approved.

Don't pay a deposit, rather finance the full amount . You sometimes get better rates if you finance the full amount, just pay in the "deposit" money after you have the car to reduce the amount you owe.

"just pay in the "deposit" money after you have the car to reduce the amount you owe"

Not a good advice, why

When you pay extra money on a financed car it reduced the total amount owed with interest, but when you pay the deposit before financing the car you will be reducing the total amount you will be owing with interest.

Even if the financial institution gives you higher rates the total amount you will be owing when you pay the deposit before financing will be less than when you pay the deposit after financing the car.

Pay the deposit before financing the car to reduce capital amount.

 

[Gtx Gaming]

"just pay in the "deposit" money after you have the car to reduce the amount you owe"

Not a good advice, why

When you pay extra money on a financed car it reduced the total amount owed with interest, but when you pay the deposit before financing the car you will be reducing the total amount you will be owing with interest.

Even if the financial institution gives you higher rates the total amount you will be owing when you pay the deposit before financing will be less than when you pay the deposit after financing the car.

Pay the deposit before financing the car to reduce capital amount.

Interest is calculated daily on the outstanding amount the money you loose won't be that much compared to the better rate you might get.

You can pay the money pretty quickly after the finance deal has been completed.

 

[supersunbird]

"just pay in the "deposit" money after you have the car to reduce the amount you owe"

Not a good advice, why

When you pay extra money on a financed car it reduced the total amount owed with interest, but when you pay the deposit before financing the car you will be reducing the total amount you will be owing with interest.

Even if the financial institution gives you higher rates the total amount you will be owing when you pay the deposit before financing will be less than when you pay the deposit after financing the car.

Pay the deposit before financing the car to reduce capital amount.

Sounds like the same thing to me

 

[Moereloos]

I would also advise you to pay as big a deposit as possible. This reduces / negates any shortfall you might have if, heavens forbid, the car gets stolen or written off and the insured amount is less than the settlement.