For many, car ownership is a necessary expense. They need something to take them from A to B, cart the kids around and haul groceries to and fro twice a month. In these cash-conscious times, many prefer to have something that is light on fuel, easy to repair and cheap to insure.
While these are all very sensible things to prioritise in a vehicle, people are often unwilling to budge on the aforementioned criteria, yet willingly spend over R10,000 p/m on vehicle instalments. They’ll tell you that buying a brand new car brings them peace of mind, and that if anything were to go wrong, there’s a warranty/maintenance plan to protect them.
But let’s be honest. Unless you really love cars, I’m sure you’d rather spend that R10,000 p/m on something else? A holiday, a retirement fund? Your bond payment, maybe. And don’t think I’m being silly, either. R10,000 p/m gets you behind the wheel of a modest, family SUV like a Toyota RAV4. Let’s look at potential options, that suit you needs and could trim your monthly budget.
A case for buying newÂ
Buying a new car brings peace of mind. Knowing you’re the first person to drive your showroom fresh vehicle will put you at ease, with the likelihood of mechanical maladies being quite small. Of course, if something does go wrong, you’ve got a warranty to fall back on. You’re also most likely purchasing a vehicle with the latest safety features – something you cannot put a price on.
As lovely as that new car smell is, you’re going to be a victim of depreciation once you drive off the showroom floor. New car salespeople are also less likely to give you a discount, as the price is pre-determined by the manufacturer.
A case for buying used
The most obvious benefit to buying a used car is the discount. Courtesy of depreciation, you can purchase a two or three-year old car for a lot less than a new car would cost. A large secondhand market also means there’s plenty to choose from, meaning you can take your time to shop around for the best deal.
The risk comes, mostly, when buying older used cars. Not knowing the full history of your potential purchase is dicey – you could end up with an absolute lemon. While some used cars do have the remainder of a warranty and/or maintenance/service plan left, most don’t. That means that repairs and servicing will come from your pocket. Less important – but still worth considering – is the limited choice in personalisation. You buy a used car as is, you can’t choose any special options.
Buying vs Leasing
Many people are choosing to lease their vehicles these days. While still a relatively new option in South Africa, leasing has enjoyed great popularity with consumers, particularly in America. Leasing can be seen as a long-term rental. Typically, a leasing contract is much shorter (3-4 years) compared to financing a car (5-6 years). Like you would do when purchasing a vehicle, leasing requires a deposit and a monthly instalment. However, the monthly premium is far less than a vehicle loan payment.
Let’s use BMW as an example. Leasing a 118i hatchback (for three years with an 80,000 km limit) would set a customer back approximately R8,400 p/m. This is with a R50,000 deposit. At the end of the contract, you hand the vehicle over and potentially lease a newer model.
Financing the same vehicle over five years (with no mileage limit) would cost you approximately R11,500 p/m, with a R50,000 deposit and no balloon payment. Unlike the leasing model, at the end of your contract you own your BMW. It’s clear to see why leasing has grown in popularity – you get to drive a new car (albeit with a mileage limit) for a lot less than expected, and with none of the stress that comes with ownership.
Companies like FlexClub offer another alternative. Through a subscription service, members get access to different cars that suit their requirements – simply ordering a car and having it delivered to their home. The company allows you to swop cars or cancel your subscription, making it ideal for those individuals who require a car, but not all the time.
There are myriad choices out there for consumers, all designed to give individuals the best consumer experience possible. Sit down with your budget to see what would suit you best. Some prefer owning a car over leasing, but the benefits of leasing are undeniable. Similarly, consider whether you really need a new car, when a quality used vehicle will save you plenty of money in the long run.
Last week, I asked you to send me your finance and investment queries. Here, Suzean Haumann* and Yolande Butchart* of Brenthurst Wealth Management shares expert advice by providing answers to your questions.
Judy asked,
I have money in a UK account from when I worked there many years ago. I’m now back in SA. It’s quite a substantial amount and is currently languishing in a bank account “earning” about 0.01%. This has been for 10 years or more and it’s stresses me to think of how much growth I’ve lost.
I’ve searched for a broker but I always get the answer that I’m not a UK taxpayer so I can’t invest the money there.Â
Please help! What can I do?Â
Suzean and Yolande answer,
It is possible to invest the money in a fund that will deliver better returns compared to that of an ordinary savings or similar bank account. It will require proving the source of the funds, typically done by providing bank statements for three months. If an SA resident and tax payer, the money can be transferred from the UK bank account (if account allows for transfers; this needs to be confirmed with the bank) to an international platform.
One option to consider is to invest in GBP in one of the funds of Momemtum Wealth International, which manages, amongst others, the Brenthurst Global Balanced Fund and the Brenthurst Global Equity fund. A financial advisor in South Africa will be able to assist. As with any investment or change to a financial plan, the investors personal circumstances, risk profile and financial goals must be considered.
- Suzean Haumann is a financial advisor and Yolande Butchart is a foreign exchange consultant at Brenthurst Wealth Management
Have a question about share investing? Write to me at [email protected].
Read more:
- What is good debt? – On the Money with Jarryd Neves
- Taking the guilt out of spending – On the Money with Jarryd Neves
- Don’t fall prey to financial fraudsters – On the Money with Jarryd Neves
