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VIEWPOINT: Car scams

“The REAL (car) scam we should be talking about …”

It seems that wherever I go lately, I’m either reading or hearing about the “R699 car scam”. The first time I heard about it I questioned it being termed a “scam” in the first place.

Seems it was all in the fine print; one just needs to read the fine print. Especially if you think a deal sounds too good to be true, that’s even more reason to read the fine print.

But then I was reminded of something my parents always told me: “If you can’t afford to pay cash for it, you can’t have it.”

Some might say it’s a somewhat archaic statement in these days of credit availability, but I think it’s still a worthwhile principle.

I’m by no means arguing this principle when it comes to buying your primary residence (as you would be part of the blessed minority if you were able to achieve this), but I would argue this principle in respect of buying a car. Financing on vehicles is not cheap!

If you are able to afford the monthly instalments on your car, you can afford to buy your car for cash. That’s my opinion at least. You just need to delay the initial gratification by a couple of years.

Think about the instalments you’re currently paying on your car … If you’re paying your car off over five years, you could probably save up to buy it for cash in under four years (based on some rough average calculations I’ve done).

So why not just get out of the cycle and delay your next car purchase for a couple of years. Instead of paying instalments on a new car, take that same amount and invest it.

Once there’s enough there, buy your car cash. And then keep on saving ‘in lieu of paying instalments” for the next one, and you should be able to replace your car every four years.

It takes a short period of time to turn this around and have one less creditor to worry about.

Furthermore, you won’t be tempted to take on instalment plans that might put you under pressure if you ever hit a financial hiccup, or fall for a “R699 car scam”.

If this option is maybe too “out there”, at least do yourself one small favour and don’t fall for the “residual value / balloon payment” carrot.

You’ll ”pay off the car” but still sit with X in debt (owing). This debt then carries over onto the next car you decide to finance.

You’re just locking yourself into the trap and will never be financially free from your car payments. To me, that’s the real scam we should be talking about. ❐

Author: Gizelle Willows CA(SA) MCom Finance is a Senior Lecturer in Financial Reporting at the University of Cape Town