Car finance: Do your homework first

Have you considered leasing a car?

Not many of us can afford the total cost of a new car upfront. When purchasing a car many of us opt for vehicle finance options or in some cases, leasing a car can be an option.

Read more: Before you commit to a car loan, read this

Les Mc Master, Chairman of the Motor Industry Workshop Association (MIWA), recently ran a workshop on car financing where the benefits and disadvantages of these options were discussed:

Car leasing

According to Mc Master car leasing is relatively new here while almost a third of US are leasing their vehicles.

Car leasing is a way to get a new or used car for a fixed period of time where you only pay a monthly portion of the car’s actual value. Essentially, you’re renting a car and although it might be a more affordable option for that time you don’t end up owning the car at the end of the agreement.

However you can renegotiate the contract to take ownership for the residual value. Lease contracts are also for shorter terms.

“Generally, buying a car, paying it off and then keeping it for many years, remains the least expensive way to go because despite the fact that vehicles depreciate over time, they do retain some value that you can apply towards buying another car.”

“If you lease a vehicle, you only drive it for a fixed period and your monthly payments go towards paying for the depreciation in the vehicle, not ownership. Lease agreements also come with restrictions on how many kilometers you can do during the lease period.”

Bank finance options

Buying a car on finance can end up being pretty costly if you consider the high interest rates most banks expect you to pay.

Your credit history also needs to be in check for the bank to know that you’re less likely to miss payments or not cover the full term of the agreement.

“It’s a mistake to base your affordability on the repayment only. Research has shown that in the current market conditions, the actual monthly installment of an entry-level vehicle accounts for less than 50% of the total cost of ownership.”

Do your homework first

Les Mc Master urges prospective buyers to research their options thoroughly.

He encourages consumers to also include other costs associated with buying/leasing vehicles such as maintenance and insurance costs when considering your finance options.

Also read: Basic car maintenance

“Now more than ever, a vehicle purchase should be thoroughly-researched and properly thought out. Always keep the practical use you want out of the vehicle in mind and consider your average mileage and the increasing cost of petrol.”

Top five DOs and DON’Ts for prospective vehicle buyers


  • Draw up a budget to establish affordability.
  • Leave enough spare cash in your budget to absorb rising costs such as fuel and interest rates.
  • Take the time to read and understand your finance contract.
  • Contact the bank if you are in a situation where you cannot meet your financial commitments.
  • Make sure you always have comprehensive insurance on your financed vehicle.


  • Overextend your budget.
  • Provide the bank with false information about your affordability.
  • Cancel insurance when you are in a financial bind.
  • Rely on a large balloon payment to make your instalments more affordable.
  • Forget to include all costs in your mobility budget: petrol, insurance, and maintenance.

Source: Wesbank