Are you thinking about buying a car? While it’s often tempting to look at a brand new model, you should also consider buying a used car. In this article, we discuss some of the main reasons why buying a used car is a great choice. We also share some valuable advice on vehicle financing, balloon payments and the current state of the secondhand car market.
5 Reasons To Buy A Used Car
Buying used cars has become more popular in recent years, and for good reason. In addition to often being more affordable for low-income or single-parent families, students, first-time drivers and startups with a small budget – used cars can offer a number of other benefits. Here are just five of the many reasons why buying a used car can be better than a new car:
1. Used Cars Are Cheaper Than New Cars
The main reason people are buying used cars is the cost factor. New cars come with a higher price tag and are often too expensive for the average car owner, especially for single-income families and the student market. When buying used cars, you can sometimes get an even better model for the same price which can be a rather appealing option.
2. Used Cars Often Have Lower Insurance Premiums
Most insurance companies in South Africa charge higher rates for new cars since they are more expensive to repair or replace. Depending on the secondhand car you buy – if it’s still relatively inexpensive, you should be able to negotiate a lower insurance rate.
3. Buying Used Cars Negates Any Concerns Over Depreciation
A new car loses value the minute it leaves the showroom floor and by the end of the first year, it will have lost around 40% of its value. While a new car depreciates, a used car has already gone through the process which means your resale value could be higher for longer so you won’t lose a large sum of money when you sell.
4. Wider Selection Of Affordable Used Cars
When you buy a new car, you’re limited to the models that are currently available, not to mention paying the dealership price. But when buying a used car, you have a wider selection with more model variants at different price levels. As such, it becomes a little easier to find the right car for your needs and budget when shopping in the secondhand car market.
5. Buying Used Cars Helps To Avoid New Car Dealer Markups
New cars are subject to dealer markups since they have to add a margin to the Manufacturer’s Suggested Retail Price (MSRP) to make a profit. In some cases, they will increase the price of high-demand vehicles even further which may make them too expensive for some customers. When buying used cars, they also add a markup but it’s not as much.
The State Of The Current Used Car Market
With the chip shortage and Covid-19 disruptions, there was an inventory shortage of new cars which saw a marked increase in used vehicle prices from around January 2021. It steadily continued on an upward curve, reaching its peak in February 2022. Since then, prices have remained elevated compared to previous years but they have started coming down across the board which is good news for those looking at buying used cars.
Although used vehicle prices went up, the rate varies by vehicle age and type. On average, older used cars saw the largest spike while newer models increased more gradually. Industry experts claim that new vehicle production and inventory issues should start recovering toward the end of the year.
Financing Options For Buying Used Cars
With rising inflation and tighter budgets, it’s becoming increasingly important to try and get the best deal when buying used cars. Here are some of the vehicle finance options you should know about.
Cash Or Vehicle Financing
When buying used cars, some people prefer to pay cash but most choose vehicle financing of some sort. The crème de la crème of vehicle finance is an ‘Instalment Sale Agreement’. This option allows you to pay off your car loan in equal monthly instalments over a number of months which can be between 12 and 72 months but most are 60 or 72 months.
Remember, the longer the terms, the lower your monthly instalment but the amount of interest charged on the loan will add up. It’s best to try and pay the car off as quickly as you can by taking out the loan over a shorter period or paying a much bigger deposit, or both!
Balloon Payment
A balloon payment works similarly to paying a deposit and monthly instalments but instead of saving up for a deposit, with a balloon payment you only have to pay it at the end of your loan term. It also offers lower monthly instalments which is great if you are in a hurry to get a car on a tight budget.
However, the last payment on the instalment plan is intentionally bigger than previous payments and the interest rate is higher. Since car financing is less stringent than home finance, it’s often easier for borrowers to secure balloon payments but it does require a commitment to save up during your loan term for the lump sum at the end.
Trade-ins When Buying Used Cars
As you do when buying a new car, you can also trade in your vehicle for a used car. When you choose to trade in your car at a dealership, the agreed price is subtracted from the price of the car you are purchasing. If there are outstanding payments, the dealer takes over the debt and pays off the loan if it’s financially viable for them.
When you trade in your car, it’s vital to make sure you are getting a good deal on both your old car and the one you are buying. Consider the structure of the vehicle finance agreement and look at the total amount you are paying back and not just the monthly payments.
In some cases, depending on the car you are trading in, you might get a better price by selling it privately and then using that money as either a deposit or toward the lump sum of a balloon payment structure.
Buying Used Cars At Group1
When buying used cars, consider all of your options and make sure you are getting the best possible deal. Use this guide as a reference when looking at your financial options and to better understand what’s on offer. Although good quality used cars, especially demo models, are highly sought after, they do offer various benefits over buying a new car.
At Group1, we only stock the highest quality used cars with our experienced team performing thorough inspections of each vehicle for added peace of mind. Buying used cars can be somewhat daunting but it doesn’t have to be when you work with reputable dealerships, like Group1.
When buying used cars, any good dealership’s Finance and Insurance department (FNIs) will happily explain everything to you in great detail and if something doesn’t make sense, they will answer any questions you may have.
