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Home»Biz News»Residual Payment on Your First Car
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Residual Payment on Your First Car

EditorBy EditorFebruary 19, 2015Updated:October 5, 2016No Comments3 Mins Read
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As a first time buyer, buying a car is a big deal.  It’s what we consider an advanced level of decision making, and isn’t usually done on a whim. It’s no secret that when you purchase a new car and drive it off the showroom floor, it loses at least 10% of its value. Essentially, if you tried to sell it back to the dealership immediately, you would lose about R15 000 on a R150 000 car. It seems a ridiculous thought. But the fact is that we rely on our cars, and we have no choice but to purchase these depreciating assets.

The first thing you’re usually asked when walking into a car dealership is “How much do you want to spend monthly”, not “how much do you want to spend for the total amount on a car”. Presume the buyer says “Roughly R2000”. The car salesman will more often than not, try all avenues in order to get the vehicle to this price, regardless of the overall amount.  There are a few options to explore: The term over which the repayments are made, the deposit, and the residual. As a first time buyer, putting down a deposit of 10% can be a financial burden, hence, the balloon payment (residual) is the next best option. By implementing a residual payment after a 72 month repayment period, your monthly repayments will be much less.  However your residual usually sits at around 40% of the totally value of the car.  At the end of the 72 month term you are subsequently left with a huge amount to settle.  

[su_row][su_column size=”1/3″]car and cashes on scales. Isolated 3D image[/su_column] [su_column size=”2/3″]

You have three choices:

1) Settle the amount in full;

2) Refinance the amount;

3) Or trade in the car in order to settle the amount, and then finance a new vehicle.

[/su_column] [/su_row]The option that stands out as being the most attractive is settling the amount in full.  But, similar to the deposit, not many people and particularity young people, have roughly R50 000 at their disposal.

The solution to being able to pay this amount is probably a lot simpler than one would think.  One needs to look at investment accounts with a fixed monthly deposit with a good interest rate. For example, if you pay R500 into an account that earns interest every month for a 72 month period, the chances are that you will have more than you require for your balloon payment.

If you need more advice on how to plan for the future, save and invest your money in investment accounts, contact one of our financial advisors today.

 

Buying a Car car savings Residual Car Payment Residual payment
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