CRA Personal Finance – South Africa
BY FAISAL MKHIZE
In this time of reduced incomes, limiting the costs associated with your vehicle could save you a fortune.
The outbreak of the Covid-19 pandemic in SA has not only introduced a challenging period for those personally affected by the virus but has also resulted in significant financial strain for many consumers.
Against the background of the economic contraction of 51% in the country’s GDP in the second quarter, job losses and salary reductions have unfortunately become a regular occurrence. Moreover, the past few months follow an already difficult economic period, which saw more and more car buyers opting for bigger balloon payments and/or extended repayment periods to improve affordability.
Despite the growing move towards remote working arrangements, mobility remains an important consideration for the majority of South Africans. If you can sustain your use of public transport for an extended period, I would encourage you to do so.
However, if you own a car, consider limiting associated cost pressures, particularly as disposable incomes have been impacted by the Covid-19 pandemic. And amid suggestions that the ripple effect of the Covid-19 crisis may linger for the better part of the next two years, budgets will likely remain under pressure – which bodes the question: what alternatives are there to reduce the cost of vehicle ownership?
To answer this question, it is worth looking at the four main components that determine a consumer’s overall monthly vehicle expense in isolation: the instalment, insurance premium, maintenance and fuel.
While the finance term, interest rate, deposit and balloon payments all have an impact on the size of the monthly instalment, the biggest driver of this expense is the sale price of the vehicle. As such, in trying to reduce the monthly instalment and save costs, it is important to have a critical look at your budget and practical requirements and to buy with this in mind.
Buying a vehicle is an exciting exercise, but don’t get caught up in the hype.
Buying a vehicle is an exciting exercise, but don’t get caught up in the hype – scrutinise the invoice to ensure you don’t pay for a long list of extras that you don’t really need. Negotiate with the dealer on ancillary charges such as licence and registration fees.
Once you’ve settled on a model and value-adds, the easiest way to reduce the instalment, is to pay a deposit. The monthly repayment of a vehicle of R300,000, financed over 72 months at an interest rate of 9%, (no deposit and no balloon) will be roughly R5,500. By paying a deposit of R40,000, the instalment will reduce to about R4,780, a saving of R720. In contrast, a balloon payment of the same amount (R40,000) will only cut the monthly expense to about R5,080.
Delaying the purchase to save for a deposit also creates equity in the deal faster, putting you in a better position when you eventually trade in.
Likewise, it is wise to determine a budget for your vehicle purchase upfront and to search for vehicles in that price range, rather than leaving that as the final step in your purchase consideration and later seeing how you can afford it.
It is often possible to negotiate a discount if you include your car as part of your overall short-term insurance policy. It is also worthwhile to shop around for more competitive rates every 12 to 24 months. Your credit profile also influences your risk status and therefore maintaining a healthy credit scorecard is advantageous and helps to attract a favourable monthly premium.
It is also in your best interest to consult your insurance provider about a potential discount on your premiums if you do not use your vehicle as frequently as before due to the Covid-19 pandemic lockdown, as your risk profile may have reduced.
The focus should be on the type of maintenance that will enable you to keep your car in a good condition, allowing you to keep it for longer and achieve some savings in the process.
While a new vehicle would typically be covered by a maintenance plan for a specific period, with a used vehicle, the maintenance premium will increase with the mileage. The maintenance considerations should already be considered when buying the vehicle. This may require increased savings.
To reduce your maintenance costs and prolong the lifespan of your tyres, rotate them at regular intervals. To replace all four tyres at once could cost as much as R8,000 or well over R10,000 depending on the brand and type of tyre required.
Check your battery regularly, as the unexpected need to replace your battery and the cost consideration may also cause a shock to your finances.
It is also important to ensure that your vehicle oil is drained and changed annually or in line with the manufacturer requirements.
If you find yourself in a tight corner financially and unable to replace everything, these are a few of the basic essential items you should focus on to maintain the life of your vehicle.
Use your air conditioner regularly, even during winter, yet not for prolonged periods. Disuse prevents the lubrication of seals which may break and attract additional cost.
Many motorists may have been relieved to realise a reduction in their monthly fuel bill as travel ground to a near halt during lockdown levels 5 and 4. But these savings may have been offset by the gradual normalisation of economic activity in recent months and the resultant increase in travel for consumers.
Currency fluctuations and the volatility of the international oil price all bear on domestic fuel prices which have remained relatively stable over the past few months. But maintaining vigilance on your fuel consumption and spend should continue to be prioritised.
Change the way you drive.
Change the way you drive by keeping to speed limits, pull away from stop streets and robots gradually and resist accelerating harshly. Always drive in the highest gear possible. Also reduce the frequency of short trips which use more fuel. Avoid overloading your car, as this will increase fuel consumption to power the engine. Unused items such as roof racks and bike racks can also be removed to lighten the load.
Avoid keeping your car idling for longer than 30 seconds. Seeking alternative routes to escape peak-hour traffic can result in fuel savings in the long run. The Automobile Association of South Africa suggests building up speed as you approach an uphill stretch and when you reach the crest, to remove your foot off the accelerator and rely on your vehicle’s momentum to move you forward.
Where possible, join a lift club, which not only reduces the wear and tear on your car but also allows you to relax while someone else does the driving.
With a few smart strategies, what could be the burden of vehicle ownership, could become a joy.
Article Credit To Times LIVE.