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The uncertainties of car finance...be prepared!

Some uncertainties can be more costly than others…

We live in a world full of risk and uncertainty. Some uncertainties can be more costly than others if not managed. We are not saying that you should be paranoid or obsessively compulsive in the face of life’s changing events, they just happen. It is, however, always a good idea to have a plan, an emergency fund and a well mapped budget should you happen to go on a detour.

 While the only thing worrying you at the moment might be whether your car loan will be approved by the bank, there are other key factors you should also consider. No one knows what the future holds, so you need to be prepared for whatever might come your way, so you don’t get trapped in a cycle of debt.

 Some of the life changing events that car buyers need to think about before buying a car are:

·         A growing family – When you bought your car, you may have been single and decided a two-door sports car was the hotrod for you. Two years later, you are starting a family and it has just dawned on you that a baby seat isn’t going to fit in the space where your sound system lives. Or perhaps you meet someone who already has a child or two – and you decide to blend families. Life has changed and you may need to look at selling your sports car to buy a family car to suit your new lifestyle.

·         Divorce or separating from your partner – This is another life changing event that not only influences your budget, but could also have a huge impact on your car-buying journey. When you separate from your spouse you are left with a single income, which means you will be paying for your car repayments, petrol and all the other associated costs yourself.

·         Fluctuating interest rates – When the interest rate increases, you will pay higher car instalments that eat into your budget. Following an interest rate increase you will need to adjust your spending.

·         Losing your job – The job market is very fickle at the moment – so what happens if you are retrenched? This is definitely something you couldn’t have known or planned for. If you are retrenched and don’t have an insurance policy in place, you are still expected to pay the bills. It’s a very worrying time, but you need to let the bank know immediately before you miss any car payments. When you are upfront the bank can modify your repayment plan to help you afford your instalments.

·         Being a victim of crime or having a serious car accident– As they say, rather be safe than sorry. When you signed your finance contract you promised to have your car comprehensively insured for the unforeseen. This would include events such as a hijacking or a car accident. Any one of these traumatic events could impact your finances, especially if you have cancelled your car insurance. When paying off your car loan, you will need to confirm you are insured comprehensively at least once a year.

If you decide to cancel your car insurance you place yourself and your budget at risk every time you are on the road. If your financed car is stolen or written off in an accident, you will still have to pay back the money you borrowed from the bank. That’s a lot of stress, so rather just make sure you’re covered by comprehensive insurance. Car insurance may seem like a grudge purchase, but it is better to be fully insured than deal with the emotional and financial pressure of paying back the outstanding debt owed to the bank.

These are just some of the uncertainties of car finance. The ‘ideal’ car you want today might not be the ‘ideal’ car that suits your lifestyle or your financial situation in five years’ time. It’s a good idea to consider these life changing events before you commit to a bumpy five year journey that could hold some interesting unforeseen events.

 Source: WesBank

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