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Naledi writes:
I’m a young adult in need of advice. I am currently saving up for a good deposit for a car.
What are the pro and cons of saving up to put down a good deposit?
City Press replies:
A deposit is very important for several reasons.
It can reduce the interest rate.
A bank will view the fact that you could save for a deposit as a positive factor when calculating the interest rate payable.
You have shown an ability to manage your finances and the risk to them of losing money is lower if the car debt is less than what you paid for the car.
It will lower your monthly instalments and you will pay less interest in total as you are borrowing less.
For example, you buy a R150 000 car and finance it over 60 months:
Deposit: 0
Monthly repayment: R3 547
Total repaid over 60 months: R212 820
Deposit: 10% (R15 000)
Monthly repayment: R3 202
Total repaid over 60 months: R192 120
Total saving net of deposit: R5 700
You can shorten the financing period – and save more money.
Deposit: 10% (R15 000)
Monthly repayment: R3 447
Total repaid over 54 months: R186 138
Total saving net of deposit: R26 682
If you use the deposit to shorten the financing period, your R15 000 has in effect given you a tax-free return of nearly 80% in just five years.
When it comes to financing, the lower the interest rate and the shorter the time frame, the less you pay.
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