The vehicle market is highly competitive in South Africa. The affordability of a pre-owned car makes them a popular choice for many new buyers, however, brand new cars have the advantage of reliability and manufacturers guarantees. Formex produces quality parts for vehicles in South Africa that adds to the reliability and durability of new cars.

When buying a vehicle, the purchases are often made through vehicle financing options. Paying off a car over five years makes it more affordable for South Africans. But financing a car is not the only option available to buyers; leasing is quickly gaining popularity as an alternative solution in South Africa.

“Traditionally, South Africans have leaned towards bank financing when buying a vehicle but there are more options which can be explored,” explains CEO of the Retail Motor Industry Organisation (RMI), Jakkie Olivier. “[Leasing] certainly has advantages for South Africans in light of rising interest rates, fuel hikes and a shaky rand,” he says.

Differences between leasing and financing

Whichever option you decide to choose, be it financing or leasing, know what you’re doing from the start of the process. The main difference between financing and leasing is that the buyer will not own the vehicle at the end of the leasing term. Through financing, the buyer will own the car once it has been paid off.

Leasing a car is usually for a short period of time only, unlike financing which is usually for a period of five or six years. At the end of the leasing term, the buyer can renegotiate the terms of the contract and offer to pay the residual value of the car if he or she wants to take ownership. Leasing can be cheaper than financing but there are additional restrictions.

Generally, buying a car, paying it off and then keeping it for many years, remains the least expensive way to go because, despite the fact that vehicles depreciate over time, they do retain some value that you can apply towards buying another car,” says Olivier.

“If you lease a vehicle, you only drive it for a fixed period and your monthly payments go towards paying for the depreciation in the vehicle, not ownership. Lease agreements also come with restrictions on how many kilometres you can do during the lease period,” he explains.

Know what you’re doing when buying a car

Before deciding which option is best for you, do extensive research and always keep an eye on the fine print of the contracts. Both bank financing and leasing options will come with their own stipulations and requirements, so be aware of the minor details and their implications over the term of the agreement.

A large portion of the monthly installments in a financing agreement go towards interest on the loan. Over five years, these interest payments actually drive up the total cost of the vehicle. Banks are also quite sticky about who they loan money too, so it can be difficult to secure a good financing deal if your credit history is not spotless.

When financing a vehicle, the buyer needs to keep in mind the costs of insurance and maintenance. Research has shown that the monthly repayments of a car only account for half the actual cost of ownership. Fuel, servicing and insurance can double the monthly costs of ownership.

“Now more than ever, a vehicle purchase should be thoroughly-researched and properly thought out. Always keep the practical use you want out of the vehicle in mind and consider your average mileage and the increasing cost of petrol,” explains Olivier. This also applies to leasing a vehicle.

How to ensure an affordable purchase

Whether financing or leasing a car, the buyer needs to draw up a monthly budget and stick to it carefully. Make sure you take into consideration monthly fuel costs and insurance. Leave enough spare cash in your budget to account for annual service costs.

Spend some time researching the options available to you and read the fine print of the agreements. If you are struggling to meet monthly leasing payments or financing costs, speak to the bank or other party involved in the contract. Avoid cancelling your insurance if you’re struggling to meet your monthly financial demands.

Formex Industries is a metal forming and assembly company that supplies a variety of complex products to the local automotive industry and export market. The company is based in the Nelson Mandela Bay metropole, South Africa’s foremost region for automotive manufacturing and export.

Formex specialises in producing components for the catalytic converter industry, as well as metal components and assemblies for the various vehicles. Formex aims to become one of the foremost suppliers for the South African automotive industry by 2035, aligning itself with the South African Automotive Masterplan (SAAM) which takes effect in 2020.

Formex is a Level 2 B-BBEE supplier with over 80% black ownership, of which more than 40% are black women. The company is owned by Deneb Investments Limited – a subsidiary of Hosken Consolidated Investments Limited (HCI) – one of South Africa’s biggest true B-BBEE companies listed on the Johannesburg Stock Exchange (JSE).

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