As vehicle prices continue to climb, financial experts are warning South Africans not to let affordable monthly instalments cloud their judgment when purchasing a new car. While securing vehicle finance approval may seem like the biggest hurdle, consumer advocates say many buyers underestimate the true long-term cost of vehicle ownership.
Consumer journalist Wendy Knowler has cautioned that hidden expenses such as insurance, maintenance, fuel costs, balloon payments and lengthy finance agreements can place motorists under financial strain years after driving their new vehicle off the showroom floor.
Speaking on 702, Knowler said many consumers focus primarily on the monthly repayment amount without considering the broader financial commitment that comes with financing a vehicle over six, seven or even eight years.
With more South Africans relying on vehicle finance to cope with rising car prices, understanding the full financial picture has become increasingly important.
South Africans Must Understand the True Cost of Car Ownership
According to Knowler, one of the biggest mistakes South Africans make when shopping for a vehicle is concentrating solely on whether they can afford the monthly instalment.
While the repayment to the bank may be manageable, there are several additional costs that can significantly increase the total expense of owning a vehicle.
These include insurance premiums, fuel consumption, routine servicing, maintenance costs, licence renewals and tyre replacements. Over the lifespan of a finance agreement, these expenses can add up to thousands of rand.
Knowler stressed that prospective buyers should evaluate all these factors before signing a contract.
“There’s a lot to consider very mindfully before you go and sign that contract,” she said.
She noted that buyers often become excited about purchasing a new car and overlook the reality that vehicle ownership involves ongoing financial responsibilities that extend far beyond the monthly repayment.
Financial experts agree that a realistic budget should account for every aspect of ownership rather than focusing on finance costs alone.
Insurance is another major factor that many South Africans fail to consider before committing to a vehicle purchase.
Knowler advised consumers to obtain insurance quotations before selecting a specific model, as premiums can vary significantly between vehicles.
Some popular vehicles attract higher insurance costs because they are considered high-risk targets for theft and hijacking. In certain cases, insurers may require owners to install one or more tracking devices before they agree to provide cover.
These additional requirements can further increase ownership costs.
For many South Africans already stretching their budgets to qualify for vehicle finance, unexpectedly high insurance premiums can create financial pressure that was not factored into the original purchase decision.
Knowler said obtaining insurance quotes beforehand can help buyers make more informed choices and avoid unpleasant surprises after taking delivery of their vehicle.
Choosing the right interest rate structure is another important decision facing consumers.
WestBank executive Lebogang Gaoketse said buyers should understand the differences between fixed and variable interest rates before finalising a finance agreement.
A fixed interest rate ensures that monthly repayments remain the same throughout the duration of the contract. This option offers predictability and allows consumers to budget more effectively.
A variable interest rate, however, fluctuates according to changes in South Africa’s repo rate.
When interest rates decrease, borrowers benefit from lower monthly repayments. But when rates rise, monthly instalments increase as well.
Gaoketse explained that there is no universal solution suitable for every buyer. The best option depends on an individual’s financial circumstances, risk appetite and ability to absorb future repayment increases.
South Africans should therefore carefully assess their financial position before deciding which rate structure best suits their needs.
One of the most significant trends in vehicle financing is the growing use of balloon payments.
A balloon payment allows consumers to reduce their monthly instalments by postponing a portion of the vehicle’s purchase price until the end of the finance agreement.
While this option can make a vehicle appear more affordable, experts warn that buyers should fully understand the implications.
Gaoketse revealed that approximately 30% of WestBank’s vehicle finance agreements currently include balloon payments.
He stressed that the deferred amount remains payable and does not disappear when the contract reaches its conclusion.
“They free up some cash upfront, and that big amount does not go away,” he explained.
According to Gaoketse, the average balloon payment has increased substantially over the past few years. Before the COVID-19 pandemic, balloon payments typically represented about 25% of a vehicle’s financed value. Today, that figure has risen to approximately one-third of the financed amount.
Rising vehicle prices are largely responsible for this increase as consumers seek ways to keep monthly repayments manageable.
Knowler urged buyers to thoroughly review every document before signing a vehicle finance contract.
Although complaints about misunderstood balloon payments have become less common, some consumers still enter agreements without fully understanding the financial obligations involved.
She encouraged South Africans to ask direct questions about balloon payments, early settlement fees and any additional charges that may apply during the finance period.
Gaoketse noted that lenders may impose penalties for early settlement of vehicle finance agreements. However, consumers can often reduce or avoid these costs by giving advance notice of their intention to settle the account.
Knowler also reminded buyers that finance agreements are subject to consumer protections under the National Credit Act. These protections provide time for consumers to review quotations, seek professional advice and fully understand the terms before committing.
Her advice is simple but important: South Africans should not allow the excitement of purchasing a new vehicle to overshadow the long-term financial commitment involved. Taking the time to understand every aspect of a finance agreement today could prevent costly surprises and financial stress in the years ahead.
Source- EWN
