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Car-buying guide: 4 ways to survive SA's Junk Status downgrade

2017-04-26 08:19

JUNK STATUS: 'Rising fuel and car prices are just some of the costs that will start eating into the budgets of South Africans,' says Wesbank as it looks at ways motorists can survive SA's Junk Status downgrade. Image: iStock

Johannesburg - The South African motoring industry’s first quarter of 2017 was characterised by a slight strengthening in the performance of the Rand. Yet the positive benefits of a sturdier currency were short-lived, according to the TransUnion's SA Vehicle Pricing Index (VPI)

The VPI report revealed an increase in pricing for new vehicles to 8.8% up from 6.6% in Q1 2016, while used vehicles prices have risen from 2.2% in Q1 2016 to 3.7% in Q1 2017.

Following the recent economic downgrades by international credit ratings agencies, South Africa’s ailing economy is set to take its toll on motorists and new car buyers.

Bad news for motorists

Rudolf Mahoney, Head of Brand and Communications at WesBank, said: “In simple terms, the economic downgrade is like a poor credit record. It means that it will become more expensive for South Africa to borrow money from international banks and investors. “Unfortunately, this means that the costs will be borne by consumers and taxpayers, and that’s bad news in our market where consumers are already heavily indebted.”

How will Junk Status affect motorists?

One of the most immediate effects of the credit downgrade is the performance of the Rand, which has fallen around 6% in value. All motorists will feel the effects of this at the fuel pumps, says Wesbank, as petrol and diesel prices steadily increase in the coming months. Consumers in the market for a new car will also experience the effects of a weaker Rand; around 75% of the cars on sale in South Africa are imported, and manufacturers will have to adjust prices in line with the exchange rates. 

How has SA's Junk Status downgrade affected your car-buying/selling habits? Tell us your story

Rising fuel and car prices are just some of the costs that will start eating into the budgets of South Africans,

WesBank shares the following advice: 

1. Essentials only

Rising costs will slowly eat into monthly budgets, so consumers are urged to draw up a list of expenses and identify those that absolutely have to be there. Grocery bills, insurance premiums, car instalments and petrol are non-negotiable, while parties, shopping sprees and holidays are luxuries that could be saved up for or delayed.

Mahoney said: "It’s important to have some breathing room in your budget so that you can easily afford higher fuel prices or a hike in your insurance premiums. These are monthly costs that don’t go away."

2. Keep a healthy credit record

Consumers who see that rising costs might be unmanageable can consider downgrading their vehicles and obtain a more affordable vehicle with lower monthly instalments and more affordable insurance premiums. This is best done before falling into arrears and having to make a payment arrangement with the Bank.

Mahoney said: "It’s difficult to downgrade your car, especially in a society where cars are status symbols. But it’s far more important to have a perfect credit record. In a few years, when the economy has started to recover and you are in a better financial position then your sterling credit record will help get you back into that flashy car."

3. Stay debt free

While it’s difficult to be completely free of debt, WesBank does advise consumers to pay off credit cards and loans as soon as possible – and also to avoid taking on any new debt. Not only will this make for a healthier credit profile, it also removes the temptation to use those credit facilities on unnecessary items.

Mahoney said: "The smaller debts are easier to settle, and once you’ve paid them it’s best to close those accounts. Instead, look at saving money to buy items you want – or even use those savings as a deposit for your next car."

4. Be money wise

Low confidence levels might mean that consumers choose to hang on to their existing cars for longer, but it’s a reality that there are many first-time buyers who need cars – or consumers who simply have to get a replacement vehicle. In these instances, WesBank has three bits of advice for potential buyers to structure their car loans: use a deposit, borrow as little as possible, and pay it off as soon as possible.

Mahoney said: "A deposit definitely helps reduce your monthly instalment, which is good for your day-to-day budget. Borrowing as little as possible ensures that you live within your means. And paying off your loan in a shorter period like four years, instead of six, means that you pay less in interest fees."


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