Every year during National Savings Month, the South African Savings Institute remind us that South Africans simply do not save enough. This year, consumers are even more challenged due to the country’s downgrade to junk status and its fall into technical recession, and are having to hold more tightly to their purse strings.
Tough economic times however, do not take away the need to cover basic needs, and this includes reliable transport. How do you as a consumer make smart car buying decisions and make sure you have adequate insurance cover while being prudent with your finances?
“Making a sensible car buying decision comes down to understanding the key aspects involved in a car purchase”, says Lizette Erasmus, Insurance Expert at IntegriSure.
Value for money with new vs. used cars
At times, the decision to buy a car may necessitate a comparison of the value you receive when buying a brand-new car versus a pre-owned one. The popular belief that a new car loses approximately 20% of its value the minute it leaves the showroom floor may not be entirely accurate, however cars lose their most value in the first two years, making the prospect of buying used cars more attractive.
Pre-owned cars also decline in value, however at a slower rate than a new vehicle.
The cost of car ownership
Regardless of whether you buy your car brand new or pre-owned, it is important to calculate the cost of ownership of your vehicle of interest.
“Ownership cost is not only about the monthly instalment to be paid to the bank. Consumers should consider the expense that comes with owning a car – such as insurance, fuel consumption, maintenance, as well as parts availability and replacement costs. In this way, there are fewer surprises down the road,” says Erasmus.
The insurance question
The cost of insurance can have a significant impact on your car buying decision. While the age of the car you buy can influence the insurance premium you pay, cars do not automatically attract a lower premium just because they are old.
“There is no rule in insurance that the older the car, the lower the premium. Sometimes newer cars may have better safety features, lessening the risk – ultimately lowering the premium you pay,” says Erasmus.
The price or value of the car also influences the cost of insurance. The higher the replacement or repair cost of the car, the higher the premium charged. In addition, the insurance premiums for high-risk cars that are commonly targeted by criminals is likely to be higher.
High-performance cars, such as sports cars, are classified as high-risk vehicles as they are likely to be driven at higher than normal speeds.
“At onboarding stage, insurance sales agents ask specific questions, including whether the car in question has been performance enhanced. It is important to disclose all pertinent information at this point, to ensure the claims process is hassle-free when an incident occurs and you need to submit a claim,” she says.
Erasmus says that it is also important to decide whether you will take up comprehensive cover which covers for all insurable events, or third-party cover which covers the third party involved in an incident where you are at fault. “Either way, the consideration should not be solely based on the premium to be paid but the loss to be recovered,” she says.
Erasmus advises that drivers who exhibit responsible behaviour, such as installing an immobiliser or a tracking device in their vehicle, are usually rewarded with lower premiums.
People don’t always buy cars with the intention to sell later, however, there often arises an opportunity to either trade off the car as a deposit for a new one or sell it for extra income. It is therefore important to keep the car’s resale value in mind when making the decision to buy, in case you end up needing to sell the vehicle.
Conduct proper research
One of the most important aspects of buying a car is making sure you understand what you are getting.
“You have to do your homework, or you may end up getting far less that you bargained for. You may want to know whether the vehicle you intend to buy is truly at the mileage reflected on the odometer, whether it was ever written off, any police or third party interest in the vehicle or whether it is still subject to a financing agreement. There’s an array of service providers who provide such information at a small fee based on the vehicle identification number (VIN),” advises Erasmus.
The key to making the best car buying decision, it would seem, lies in investing time in research, weighing your options objectively and, ultimately, driving off with the best deal to suit your needs and pocket.