Vehicle finance - What the brochure doesn’t tell you

Marius Roberts, respected motoring expert, well-known television presenter, and self-confessed straight shooter, shares what the sales brochure doesn’t tell you.

“There are many pitfalls,” Marius states. “I think the onus is on each of us to be more educated. Be aware of all of our available buying and purchasing options and obviously be aware of things that could potentially trip you up.”

The first consideration is services and warranties. “South Africa is one of the only countries in the world that actually sells a service plan with the car. Thanks to the Consumer Protection Act, car dealers are no longer allowed to bundle deals. So when you are buying a car, that list price of the car should be the base price of the car less the service plan. But, for most consumers, the service plan is peace of mind. It’s not. Peace of mind is your warranty. The warranty comes standard from the factory. No one can take that away from you.”

He suggests that you carefully evaluate the value of service plans. He explains. “Do you go to your doctor and say, hey doc, here is money upfront for the next five years for visits that I may be doing or will be doing once a year. You keep it. Of course, you are never going to do that. Yet it’s exactly what you do when you buy your car. You take the service plan and add it onto your finance deal. Why not rather take that money and put it into your own interest-bearing account? That makes so much sense. You do not lose peace of mind because you still have the warranty. The service plan is literally there for you when you go once a year for your service, whether it be a minor or major.”

Last year in South Africa, the ‘right to repair’ also came into play. This means that when you purchase a new car from a dealership, you no longer need to service that car at that particular dealership. You only have to keep the car serviced at a reputable dealership (they will give you a list).

He notes, “Ask the dealer what the base price is for a minor service and a major service and then do the same thing with a reputable aftermarket service centre. Compare those two... I can tell you now you can be saving money here big time. You do not need to take a service plan and add that onto your three, five, or seven-year term.”

When you see an advertisement for a car, they usually include a ‘from this price’. “You get super excited but when you get to the dealership and you do your test drive, the car is spec’d to the hilt, it's got everything. Good luck trying to buy a base model. It would be the steering wheel and the four tyres,” Marius observes.

That’s when you start ticking the options list. “The manufacturers and the dealers started bundling deals into packs, so you can get your light pack or style pack or whatever it might be, and that gives you four or five elements grouped together. You pay R30 000 or R40 000 extra for it. That amount is added to your finance deal, so you actually end up paying even more, especially with the interest.”

Many consumers are not aware that when you are selling your car in a few years, the book value of your car is based on the base price of the car. “Whatever you spend on extras, say goodbye, that's gone. The only people that are going to benefit from this are the second-hand car salesman and the buyer.”  

For the buyer, there is real value because the car has all the things they want, but could not afford to buy in a brand new car.

Although he confesses it could sound old school, he’s always believed that if there is a car you want, you should go and price that car without a deposit, with full interest. “What is that going to be? Can I afford it or not? The minute you start slapping 20% into a balloon payment to make it affordable, you are looking for problems. For me, a balloon payment on a private deal is really something you need to steer away from.”

In a business environment, there are some lease deals with balloon payments that might work. “But you need to be so careful on those lease deals because they are based on buyback. Those buybacks are listed and closely linked to kilometres. The minute you go over those kilometres, you are in for a world of trouble, because you literally are going to be paying big time on that.”

He says that it’s important to think of the future, not just about the now. “With interest increasing, you might find yourself in a position where you can no longer afford your car payments. With a balloon payment, getting out of it is going to be really, really difficult.”

In South Africa, you are required to have car insurance when you buy a car, but no one follows up with you to make sure that you maintain that insurance.

“Never cancel your car insurance, just to make it more affordable. What happens when you have an accident?”

“I see this all the time,” he states. “If people can't afford the car, the first thing they cancel is their insurance. What happens when you have an accident and that car gets written off? You are going to be without a car, but still committed to making your monthly payments. That is really a position you don’t want to find yourself in. So please, never cancel your car insurance, just to make it more affordable.”