Residual/Trade-in advice

[Penquin]

So the GF bought a new Chev Spark in 05 with a residual. The car currently has 65K on the clock. Her last payment is next month and then she will have to make a decision regarding the residual. She was set on refinancing the residual till I mentioned about trading the car in. Now she is in two minds whether to refinance the residual or trade the car in.

Option A: Refinance the residual: According to Wesbank, if she wants to refinance the residual of 25k, 14% VAT will be added and she will be paying 29K over 3 years @ 15% interest. This was kind of strange to me as I thought VAT was already added when she originally bought the car, why add it again to the residual?

Option B: Trade-in: The current trade-in value of the Spark is R45k. Minus the res of 25K, so she'll have a 20k deposit if she trades it in. The way I see, the upside here is not having to pay the 14% VAT on the residual, the value on the Spark wont be dropping for another 3 years while paying the residual and she can get something with a bit more comforts; power steering/aircon/electric windows etc.

So trade-in or refinance residual? What would you recommend?

 

[phiber]

Well if she thinks she needs a new car then trade it in. If not refinance, and pay it off as quickly as possible. 3 years to pay 29k seems quite excessive. If she does trange in and buy a new car stay away from the residual. Rather just pay a couple of hundered extra every month/get a cheaper car.

 

[Nerfherder]

Depends if she wants a new car, if you get a residual its usually because you want to sell before the end of the loan.

I wouldn't finance the residual but if you have to then rather get a short personal loan that you can tailor with a shorter period. Tell them you want to pay it off in a year and get one that you can put extra money in to when you have it.

Also 15 % is insane, interest rates are way below that now.

 

[Penquin]

I know, 15% is insane. She bought the car @ 15% and they want to refinance the residual at 15%. If she trades it in, it wont be a new car. It will most probably be a used 06'ish model but with more features. Her current Spark is the base model. No bells/whistles whatsoever. I told her that only way refinancing the residual would be a good idea is to pay it off as quickly as possible. But unfortunatly all she can afford is paying it off over 3 years. And trading it on an used car of about 80k without a residual would equate to more or less the same monthly repayment over 5 years but with a better car.

 

[Fazda]

Sadly, if you finance the residual you end up with a Chevy Spark that has cost you the equivalent of a very much more expensive car, and you have nothing to show for it except, a very basic Chevy Spark which is not going to be worth very much in 3 years time.

I also think that it is criminal to pay VAT twice, but the crooks who worked that scheme out were not thinking of the consumer.

If it was me, I would cut my losses now and try and get a used car with a few more basic comforts.

 

[ALFAHOLIC]

Check the prices for Chevy Spark's and I'm sure it will be more than 25k...sell it for let's say 50k and then pay off the 25k residual and then you and your GF have 25k either on a dep for a brand new car or secondhand car or you can go overseas or on a nice holiday or save the money or buy shares in ABSA or MTN or best still...what's picking up now? SABC boss!

Just dont refinance the residual, it will seem like little each month but if you think like an accountant you'll realise you paying faaaar more than initially expected...sell it!

 

[phiber]

If you can't pay the residual off quickly, rather sell the car and have some sort of a deposit.