09/03/2025
🤔Is financing a brand-new car a smart move?
It’s tempting to commit to a financing agreement for a new car fresh off the showroom floor, but with it comes the higher repayment costs, plus additional expenses like steeper insurance premiums and any costs not covered by your service plan.
Consider the following pros and cons of financing shiny new wheels:
BENEFITS OF FINANCING A BRAND-NEW CAR
🚗You get the latest safety and comfort technology
Manufacturers are constantly optimising their offering and churning out new models to keep up with the needs of the discerning driver… and to stay ahead of competitors. With a new car, you’ll pay a handsome sum, but be sure that the car’s specs are in line with the industry standard – giving you peace of mind especially on the safety front.
🚗New wheels = no hidden fender benders
When purchasing from a reputable second-hand sales dealership, you can almost be guaranteed to receive a full history of the vehicle, plus have the peace of mind that a chop shop didn’t feature anywhere in the vehicle’s past life. But sadly this is not the case with all dealerships, which means purchasing a brand-new car gives you that added confidence your car has all original parts, and is not a pieced-together composite of a written-off vehicle.
🚗 If you’re responsible, it could improve your credit score
This comes with a caveat: you could finance a used car too, and if you honour the credit agreement responsibly, you would still be helping improve your credit score.
👎DOWNSIDES TO FINANCING A BRAND-NEW CAR
From an asset value point of view, a vehicle begins to depreciate within seconds of being driven. The moment you drive off the showroom floor, you’ve already lost 20% of the vehicles value. If you’ve got your eye on a new model on the market, see about getting a well-priced demo model.
🚗Balloon payments a no-no
Many people tend to take out a balloon payment as part of their financing agreement in order to be able to ‘afford’ a car that they actually can’t afford, but really, this is not advisable, as it makes the car even more expensive at the end of the day.
🚗Have you budgeted for servicing?
Brand-new cars tend to come with expensive service plans. It makes much more sense to create a separate bank account where you save R1 000 a month to service it when necessary..
🚗Watch out for interest rate hikes
Just because you can afford that shiny new car now, it doesn’t mean you will be able to afford it in a few years when the interest rates go up. Rather spend a little bit less than you can afford, so that if the interest rates do go through the roof, your car is still within budget.
