First Gear - First things first
Content
CHAPTER 1:
First things first
Money isn’t everything but it sure does help when you want to buy a car. So, unless a long-lost great uncle has left you a small fortune, the first question most of us need to ask before shopping for a new car is: “What can I afford to drive?”
But your answer needs to take into account more than just the purchase price. This, we’re afraid, is just the tip of the motoring iceberg. The costs of financing, maintaining, repairing and insuring your car – along with incidental expenses such as parking and registration fees – also need be factored in. As Ford Asia Pacific and Africa Director of Sales Mark Winslow points out: “It’s not only the price of the car itself, but the cost of ownership that impacts affordability.” Of course, most guys – take young Jack for example – can’t wait to take their girlfriend for a cruise in a flashy new convertible or a racy Focus RS. After all, they do have a certain image to maintain. But, for most first-time buyers, the more affordable Figo subcompact or the Fiesta are more realistic choices. And the really terrific news is the fact that they are still fun cars to drive – you really don’t need to spend a small fortune in order to have a cool, hip motoring experience. It all boils down to what you can afford. “Customers should not feel too much pressure from their car payment,” notes Ford Automotive Finance (China) Vice President of Sales and Marketing Eric Chou. “If a customer chooses to finance a car, his monthly dispensable income (money left over after taxes, rent or mortgage payment, and basic living expenses are deducted) should be more than twice the amount of the monthly payment.
6
First Gear
First Gear
7
“Or, to put it another way, the customer’s average bank account balance should be at least double the amount of the car payment,” he adds. The authoritative Consumer Guide Automotive says it could even be a good idea to shop for finance before going car hunting. “Decide how much you can afford and how much you are willing to pay before you shop for a vehicle. If, like most consumers, you have to borrow money, shop for a loan before you shop for a vehicle,” it suggests. Standard Bank of South Africa advises prospective car buyers to very carefully consider how a car purchase will impact
their personal finances, because everyone should aim to save at least a small portion of their pay check. “The first question to ask is how much you can afford to pay on a monthly basis,” says Keith Watson, director of strategy and business support, Standard Bank. If the car is going to add 10 percent to your monthly debt, that is probably manageable. As much as guys such as Jack get a kick out of driving the latest, sexiest set of wheels, your car should not cost more than your house! How much fuel your car will consume is also an important budget consideration. Estimate the average distance travelled each month, and divide this by the car’s
estimated fu el mileage to figure out ho many litres of w petrol it will take to get yo where you ne u ed to go. Don ’t forget to al for future pr low ice increases at the pump you could ru – or n out of mon ey before yo out of fuel! u run When estim ating the co st of owning new car, repa a irs and maint enance also come into pl ay. Once you’ ve chosen th model and br e and that tickl es your fanc a good idea y, it’s to gauge the reliability of target vehicl the e. Informatio n about wha of repairs a sp t types ecific model is likely to ne over time is ed available on line and with consumer gr oups, as wel l as data abou consumer co t mplaints an d recalls. Fa cebook
fan pages exist for many new vehicles, and lots of helpful information, from both current owners and the manufacturer, can be found there. Even the most reliable cars on the market need periodic maintenance and repairs. Tyres, filters, fluids and belts need to be replaced regularly. A stray pebble on the highway could damage the windscreen. And, if you are unlucky and have an accident, you could be replacing a fender or headlight – and more.
4.5l/100km
The fabulously low fuel consumption of the Fiesta 1.6 TDCi – a fun but sensible buy.
8
First Gear
First Gear
9
5
The cost of replacement parts can vary greatly. Imported vehicles are often the most expensive – and take longer – to repair because spare parts may need to be shipped from abroad. The more frugal among us save up all their pennies before heading to the dealership to make their purchase. But most car-buyers only have enough money saved for a down payment and will need some sort of financing plan to complete the sale. Dealer finance is often the most convenient and popular option. At reputable dealerships, the staff will sit down with the customer and tailor a payment plan to meet their individual needs, after calculating monthly income, household expenses, mortgage payments, and food and entertainment expenditures. They can adjust the amount you must pay each month, or the number of payments you have to make over the lifetime of the contract, depending on the buyer’s financial situation.
7 out of 10
The number of car purchases in which women are involved in the UK.
Five fast buying tips
• Keep your emotions under control. Be conservative and don’t rush; you’ll have to live with this purchase for years to come • If you’re financing your car purchase, your monthly payment should not put a big strain on your budget. Don’t bite off more than you can chew • Make sure you understand all the terms of your buyer’s contract, paying special attention to the interest rate and whether there is a balloon payment required • Figure out how much it will cost to keep the car running before you buy. Remember: cost of ownership counts! • Shop around for the best insurance rates
10
First Gear
First Gear
11
Keep in mind that lower monthly payments mean you’ll be paying off the car for a longer period of time, and more of your hard-earned money will be going towards the interest. And remember that interest rates rise and fall. Rising interest rates could affect the terms of your car repayment, along with other debts like a home loan or credit card. Even a small rate hike could raise your monthly payments across the board and bust your budget, so it’s advisable to allow for some wiggle room. In certain instances, you can fix the interest rate (this means that it will neither increase nor decrease, so you know exactly what you will be spending for the entire duration of the finance plan). Chat to the dealer about this possibility; he/she will be able to explain exactly how it works.
In conclusion, it’s very important not to overreach. (You know what they say about car sickness: it’s the feeling you get when the monthly payment is due!) So it’s best to be conservative when calculating what monthly instalment you can afford, especially if this is your first car purchase. It’s seriously bad news to default on a car payment; this could affect your credit rating and thus your ability to get a loan, buy a house, or a second car in the future.
611 million
Before you sign on the dotted line, make sure you can see the bigger picture and understand all the payments that need to be made. Some finance plans call for what is known as a “balloon payment”. This is the total balance remaining on the car at the end of the payment plan, and it usually needs to be paid in full as a lump sum after all the monthly payments have been made... which even though it’s at the back of your mind, is still a nasty surprise if you don’t have the cash. If you don’t understand all the terms and conditions of the contract, ask an independent financing professional to look it over before you make any firm commitment.
The predicted number of cars in India by 2050, making it the world’s largest car market.
Insurance requirements vary from country to country, so be sure to check the laws in your country before you purchase a vehicle. Irrespective of the rules and regulations within your specific country though, insurance is a nobrainer, because that car of yours represents a massive investment! As such, Ford Asia Pacific and Africa Director of Sales Mark Winslow advises customers to purchase comprehensive coverage to fully protect their investment. “If you can’t afford comprehensive insurance, perhaps you should consider a less expensive car,” he says. Sports cars are generally more expensive to insure, and young drivers often pay higher monthly premiums than older, more experienced drivers with an established safety record. For smaller monthly payments drivers can opt to pay a larger “excess”, or deductible, in case of an accident. This is the amount the car owner must pay before the insurance company will reimburse him/her. A higher deductible means lower payments, and vice-versa. For example Jack visited his local insurance salesman to see how much it would cost to insure a new Ford Focus. Since the down payment on the car was going to wipe out his savings, he was looking for the lowest monthly payment plan possible. He didn’t want to spend more than USD 1,500 per year for comprehensive coverage. The salesman, after factoring in Jack’s driving record, age, marital status and vehicle model, offered Jack a plan that fitted his budget: USD 130 per month would pay for comprehensive coverage of the new Focus. Jack was
Insider insurance tips
If you begin to miss monthly car payments, sometimes the dealership can arrange a new payment schedule. But, if you fall too far behind, you could lose the car entirely... and all the money you have invested thus far! So make 100 percent sure you commit to a monthly payment you can handle to avoid an unpleasant visit from the Repo Man (just in case you don’t know this guy; he’s the chap who comes to repossess your possessions when you don’t pay!)
thrilled; this was a price he could afford. But, after reading the policy closely, Jack was confused. “What’s this bit about a USD 2,000 ‘excess’?” he asked. The salesman explained to Jack that, if he had an accident, he’d be responsible for any repairs that cost less than USD 2,000. If the car needed two new doors and a fender, and the body shop charges USD 2,300 for the job, Jack would have to pay USD 2,000, while the insurance company would pay USD 300. “Wait a minute!” Jack told the insurance agent. “I can’t afford to pay USD 2,000. After I buy this car, I won’t have any savings left!” The salesman crunched the numbers again, and came up with another plan for Jack, which provided the smallest “excess” possible, USD 100. But this time, the monthly payment came out to more than USD 235 per month. “That’s almost twice as much!” Jack protested. “I can’t afford that!” “I’m very sorry, sir,” the salesman replied. “But this is how insurance works. The more you pay up front, the less you will have to pay for any damages later. If you want to pay the minimum premium possible, that’s fine. But further on down the road, it could cost you a lot more.”* Source: Progressive Insurance Co.
*This statement is a guideline only, and not advice that should be relied upon. Insurance advice must be sought from an accredited financial services provider.
12
First Gear
First Gear
13
First things first
Money isn’t everything but it sure does help when you want to buy a car. So, unless a long-lost great uncle has left you a small fortune, the first question most of us need to ask before shopping for a new car is: “What can I afford to drive?”
But your answer needs to take into account more than just the purchase price. This, we’re afraid, is just the tip of the motoring iceberg. The costs of financing, maintaining, repairing and insuring your car – along with incidental expenses such as parking and registration fees – also need be factored in. As Ford Asia Pacific and Africa Director of Sales Mark Winslow points out: “It’s not only the price of the car itself, but the cost of ownership that impacts affordability.” Of course, most guys – take young Jack for example – can’t wait to take their girlfriend for a cruise in a flashy new convertible or a racy Focus RS. After all, they do have a certain image to maintain. But, for most first-time buyers, the more affordable Figo subcompact or the Fiesta are more realistic choices. And the really terrific news is the fact that they are still fun cars to drive – you really don’t need to spend a small fortune in order to have a cool, hip motoring experience. It all boils down to what you can afford. “Customers should not feel too much pressure from their car payment,” notes Ford Automotive Finance (China) Vice President of Sales and Marketing Eric Chou. “If a customer chooses to finance a car, his monthly dispensable income (money left over after taxes, rent or mortgage payment, and basic living expenses are deducted) should be more than twice the amount of the monthly payment.
6
First Gear
First Gear
7
“Or, to put it another way, the customer’s average bank account balance should be at least double the amount of the car payment,” he adds. The authoritative Consumer Guide Automotive says it could even be a good idea to shop for finance before going car hunting. “Decide how much you can afford and how much you are willing to pay before you shop for a vehicle. If, like most consumers, you have to borrow money, shop for a loan before you shop for a vehicle,” it suggests. Standard Bank of South Africa advises prospective car buyers to very carefully consider how a car purchase will impact
their personal finances, because everyone should aim to save at least a small portion of their pay check. “The first question to ask is how much you can afford to pay on a monthly basis,” says Keith Watson, director of strategy and business support, Standard Bank. If the car is going to add 10 percent to your monthly debt, that is probably manageable. As much as guys such as Jack get a kick out of driving the latest, sexiest set of wheels, your car should not cost more than your house! How much fuel your car will consume is also an important budget consideration. Estimate the average distance travelled each month, and divide this by the car’s
estimated fu el mileage to figure out ho many litres of w petrol it will take to get yo where you ne u ed to go. Don ’t forget to al for future pr low ice increases at the pump you could ru – or n out of mon ey before yo out of fuel! u run When estim ating the co st of owning new car, repa a irs and maint enance also come into pl ay. Once you’ ve chosen th model and br e and that tickl es your fanc a good idea y, it’s to gauge the reliability of target vehicl the e. Informatio n about wha of repairs a sp t types ecific model is likely to ne over time is ed available on line and with consumer gr oups, as wel l as data abou consumer co t mplaints an d recalls. Fa cebook
fan pages exist for many new vehicles, and lots of helpful information, from both current owners and the manufacturer, can be found there. Even the most reliable cars on the market need periodic maintenance and repairs. Tyres, filters, fluids and belts need to be replaced regularly. A stray pebble on the highway could damage the windscreen. And, if you are unlucky and have an accident, you could be replacing a fender or headlight – and more.
4.5l/100km
The fabulously low fuel consumption of the Fiesta 1.6 TDCi – a fun but sensible buy.
8
First Gear
First Gear
9
5
The cost of replacement parts can vary greatly. Imported vehicles are often the most expensive – and take longer – to repair because spare parts may need to be shipped from abroad. The more frugal among us save up all their pennies before heading to the dealership to make their purchase. But most car-buyers only have enough money saved for a down payment and will need some sort of financing plan to complete the sale. Dealer finance is often the most convenient and popular option. At reputable dealerships, the staff will sit down with the customer and tailor a payment plan to meet their individual needs, after calculating monthly income, household expenses, mortgage payments, and food and entertainment expenditures. They can adjust the amount you must pay each month, or the number of payments you have to make over the lifetime of the contract, depending on the buyer’s financial situation.
7 out of 10
The number of car purchases in which women are involved in the UK.
Five fast buying tips
• Keep your emotions under control. Be conservative and don’t rush; you’ll have to live with this purchase for years to come • If you’re financing your car purchase, your monthly payment should not put a big strain on your budget. Don’t bite off more than you can chew • Make sure you understand all the terms of your buyer’s contract, paying special attention to the interest rate and whether there is a balloon payment required • Figure out how much it will cost to keep the car running before you buy. Remember: cost of ownership counts! • Shop around for the best insurance rates
10
First Gear
First Gear
11
Keep in mind that lower monthly payments mean you’ll be paying off the car for a longer period of time, and more of your hard-earned money will be going towards the interest. And remember that interest rates rise and fall. Rising interest rates could affect the terms of your car repayment, along with other debts like a home loan or credit card. Even a small rate hike could raise your monthly payments across the board and bust your budget, so it’s advisable to allow for some wiggle room. In certain instances, you can fix the interest rate (this means that it will neither increase nor decrease, so you know exactly what you will be spending for the entire duration of the finance plan). Chat to the dealer about this possibility; he/she will be able to explain exactly how it works.
In conclusion, it’s very important not to overreach. (You know what they say about car sickness: it’s the feeling you get when the monthly payment is due!) So it’s best to be conservative when calculating what monthly instalment you can afford, especially if this is your first car purchase. It’s seriously bad news to default on a car payment; this could affect your credit rating and thus your ability to get a loan, buy a house, or a second car in the future.
611 million
Before you sign on the dotted line, make sure you can see the bigger picture and understand all the payments that need to be made. Some finance plans call for what is known as a “balloon payment”. This is the total balance remaining on the car at the end of the payment plan, and it usually needs to be paid in full as a lump sum after all the monthly payments have been made... which even though it’s at the back of your mind, is still a nasty surprise if you don’t have the cash. If you don’t understand all the terms and conditions of the contract, ask an independent financing professional to look it over before you make any firm commitment.
The predicted number of cars in India by 2050, making it the world’s largest car market.
Insurance requirements vary from country to country, so be sure to check the laws in your country before you purchase a vehicle. Irrespective of the rules and regulations within your specific country though, insurance is a nobrainer, because that car of yours represents a massive investment! As such, Ford Asia Pacific and Africa Director of Sales Mark Winslow advises customers to purchase comprehensive coverage to fully protect their investment. “If you can’t afford comprehensive insurance, perhaps you should consider a less expensive car,” he says. Sports cars are generally more expensive to insure, and young drivers often pay higher monthly premiums than older, more experienced drivers with an established safety record. For smaller monthly payments drivers can opt to pay a larger “excess”, or deductible, in case of an accident. This is the amount the car owner must pay before the insurance company will reimburse him/her. A higher deductible means lower payments, and vice-versa. For example Jack visited his local insurance salesman to see how much it would cost to insure a new Ford Focus. Since the down payment on the car was going to wipe out his savings, he was looking for the lowest monthly payment plan possible. He didn’t want to spend more than USD 1,500 per year for comprehensive coverage. The salesman, after factoring in Jack’s driving record, age, marital status and vehicle model, offered Jack a plan that fitted his budget: USD 130 per month would pay for comprehensive coverage of the new Focus. Jack was
Insider insurance tips
If you begin to miss monthly car payments, sometimes the dealership can arrange a new payment schedule. But, if you fall too far behind, you could lose the car entirely... and all the money you have invested thus far! So make 100 percent sure you commit to a monthly payment you can handle to avoid an unpleasant visit from the Repo Man (just in case you don’t know this guy; he’s the chap who comes to repossess your possessions when you don’t pay!)
thrilled; this was a price he could afford. But, after reading the policy closely, Jack was confused. “What’s this bit about a USD 2,000 ‘excess’?” he asked. The salesman explained to Jack that, if he had an accident, he’d be responsible for any repairs that cost less than USD 2,000. If the car needed two new doors and a fender, and the body shop charges USD 2,300 for the job, Jack would have to pay USD 2,000, while the insurance company would pay USD 300. “Wait a minute!” Jack told the insurance agent. “I can’t afford to pay USD 2,000. After I buy this car, I won’t have any savings left!” The salesman crunched the numbers again, and came up with another plan for Jack, which provided the smallest “excess” possible, USD 100. But this time, the monthly payment came out to more than USD 235 per month. “That’s almost twice as much!” Jack protested. “I can’t afford that!” “I’m very sorry, sir,” the salesman replied. “But this is how insurance works. The more you pay up front, the less you will have to pay for any damages later. If you want to pay the minimum premium possible, that’s fine. But further on down the road, it could cost you a lot more.”* Source: Progressive Insurance Co.
*This statement is a guideline only, and not advice that should be relied upon. Insurance advice must be sought from an accredited financial services provider.
12
First Gear
First Gear
13
