Publications
Partners
As consumers, we tend to be emotional about our purchases. We are so excited about the new car we are about to drive off in that we simply sign all the pieces of paper that are handed to us by the dealer without reading or understanding the content.
In his book Predictably Irrational, behavioural economist Dan Ariely describes this as being in a “hot state”, where our emotions are aroused.
In this state, we tend to make irrational decisions. This also makes us more susceptible to sales tactics, like being pressured into making the purchase immediately because we may “lose” the opportunity – sales people will tell you that there is someone else interested in buying your coveted item to get you to sign sooner. Or we get into a money “high” and think that because we are spending R100 000 on a car, why not throw in a few extras?
This is exactly what happened to Walter, a City Press reader who ended up paying R127 000 for a second-hand bakkie with an advertised sale price of R99 900.
Most of the extras were in the form of a maintenance plan, warranty and windscreen protection . There is nothing wrong in principle with these extras – it is not as if Walter was adding on fancy improvements like mag wheels or leather trim, which is usually the case with a new car purchase.
Vehicle selling price: R87 631.58 (excl VAT)
Initiation fee: R1 140
Total cost of additional charges: R16 961.40
- Maintenance plan: R13 277.19
- Service and delivery: R2 193.86
- Crystal fusion: R1 490
Warranty: R7 250
VAT: R14 643
Total cost: R127 626
However, Walter was not really aware of what he had signed up for and has neither used the maintenance plan that he had paid for, nor does he understand the various forms of insurance he has taken out.
“The paperwork wasn’t properly explained as it was shown and read to me from a computer screen, with arrangements that it would be emailed to me. The maintenance plan was neither explained, nor was the ‘crystal fusion’ part of the deal. I still don’t know what that is,” wrote Walter, who was also unaware of what the “platinum bumper-to-bumper” warranty he had taken out provided.
There was also a service and delivery fee of more than R2 000.
The problem is that Walter signed and agreed to all of these extras and has no recourse, except to cancel the deal, which has cost implications.
While the salesperson did go through the various policies with him, the large amount of information that was provided all at once would be difficult for anyone to fully process, let alone remember.
When making a big purchase, we make far better decisions in a “cold state”, where our emotions are not in play and we can work with just the facts to make better decisions. If you are buying a car or taking out a personal loan, take time to move into a cool state before you start signing.
Ask for the paperwork to be printed out and read through it at home, not at the dealership. Write down any questions you have and make sure you fully understand everything before you sign on the dotted line.
In Walter’s case, because he was buying a second-hand car, it was not necessarily bad advice to take out additional protection in the form of a maintenance plan, which covers the cost of the services, as well as a warranty, which protects against mechanical or electrical breakdowns. They are in effect insurance policies against future unexpected costs. But you need to decide if they are cost-effective solutions.
Don’t add it to the loan amount
In this case, Walter paid for the plans upfront and these were capitalised into his loan, so they incurred finance charges. These finance charges mean that Walter will have paid R36 939 extra for the plans, or R513 a month for the 72-month loan period, even though the maintenance plan was only for 24 months.
If Walter had paid for the maintenance plan and warranty upfront, and had not added them into the loan, he would have saved himself R10 000 in interest payments. Alternatively, Walter could have opted for a debit order payment rather than paying upfront, which he would have been able to cancel if he could no longer afford it.
Do your calculations
Find out the average cost to service the car and then calculate if the maintenance plan is worthwhile. Walter paid R15 136 for his maintenance plan, but it only covered him for the next 24 months, or 30 000km.
UNDERSTAND THE SERVICE PLAN, MAINTENANCE PLANAND WARRANTY
You need to remember that restrictions and limits also apply on both maintenance and warranty plans.
Service plan
A service plan pays only for specified aspects of the recommended scheduled services of your vehicle.
Maintenance plan
This means that you won’t, during the duration of the plan, have to worry about paying for the replacement of most parts and the associated labour costs.
Fine print
If you miss the second service of your vehicle, the plan is usually cancelled. Check the fine print, but usually a 1 500km variance is allowed before or after the service interval. A 30-day variance is allowed when the vehicle is serviced annually.
Warranty
The extent of the warranty is determined by the age and mileage of the vehicle. For cars that are older than three, there are limits on the amount paid out.
Fine print
When replacement parts are fitted to replace old, worn parts that have broken and your vehicle is now in a better condition than it was before the replacement, you may be required to pay towards the cost of the parts. Like the maintenance plan, regular servicing is required to keep the warranty valid.
