- Think before your deal on buying with trade-in
- Tax and fuel prices accelerating downsizing
- Bank says ‘focus on the break-even point’
JOHANNESBURG, South Africa – Many people feeling the combined burden of inflation, fuel bills and the 2018 VAT increase are now considering scaling down by trading-in there perhaps expensive German automobile.
That is, at least, the opinion of vehicle financer WesBank.
However, the banker says, a simple switch from an expensive sedan to a budget vehicle might seem to be a wise move but the reality is that such a swop can be costly.
MEET THE BREAKEVEN POINT
”Lower monthly repayments and fuel bills will ease the pressure on household finances,” WesBank adds, ”but sellers should keep in mind that a significant loss can be made by trading-in a car at the wrong time. The best time is when the trade value is in line with the settlement amount on the current vehicle..”
This, the bank explains, is ”the break-even point”. An earlier deal could the owner paying-in to ditch the finance contract. Put simply, if your car’s trade-in value is, say, R200 000 and you still owe the bank R250 000, you’ll have to come up with R50 000 even before looking for a less expensive vehicle.
Not so affordable any more, hey…?
REACH THE BREAK-EVEN POINT EARLIER
Ghana Msibi, WesBank’s sales and marketing manager, told The Corner: “Vehicles, especially those bought less than 18 months earlier, ”might have depreciated faster than their owners payments. For many people that could mean, in the long run, it saves money to wait.”
WesBank’s data says most vehicle finance contracts are signed for 72 months. In such a case the break-even point would be reached between 24 and 36 months, depending on the size of the deposit.
It’s also possible to make the break-even point earlier with a larger deposit or/and a shorter finance period.
DEALERS CUTTING BACK ON AID
The new-vehicle market in South Africa, WesBank adds, is very competitive. Some brands offer to help potential buyers settle outstanding balances – in effect a discount on the replacement vehicle’s trade-in price or a discount on the vehicle being bought…
…and these ”trade-in assistance programmes” can make up for some of the shortfall for buyers not yet at the break-even point.
South Africa’s under-performing economy, however, means vehicle retailers are spending less on such discounts so shopping around is a good idea.
”Patience is vital in any car-buying journey,” Msibi adds, ”whether trading-up or down, or for first-time car buyers.”