How to be clever when buying a car

CapeTalk's Lester Kiewit speaks to Heide de Lange of Motor Plan Direct.

Listen below:

The Market Research Bureau reports that people have been spending their two-pot retirement withdrawals on financing cars.

Taking out a loan for a car over an extended period might seem more affordable for your pocket short term, but it could end up costing you more over time.

Banks are allowing people to finance a vehicle up to seven or eight years with a balloon payment on top of that.

A balloon payment is a large, lump-sum payment due at the end of a loan term.

It's structured so that monthly payments are lower, with the remaining balance paid in full at the end of the loan term.

These long repayment periods and balloon payments make monthly instalments more affordable, but they make the total loan amount cost more in the end.

"If you need a balloon payment, you cannot afford the vehicle you bought," warns De Lange.

"... most people often go for an option to buy bigger cars to appear rich..."

- Heide de Lange, Motor Plan Direct

If you are in the market for a new car, De Lange shares some tips:

• Make sure you can afford what you think you can afford.
• Calculate the cost of comprehensive insurance on the total instalment.
• Check if annual service/maintenance plans are covered in the deal.

"... don't fall into the trap of paying off a car longer. Rather wait a little bit longer or go for a lower model and make sure you know what the cost of the services is going to be... and whether there's a product that you can buy upfront to potentially finance and cover that for you for a number of years."

- Heide de Lange, Motor Plan Direct

Scroll up to the audio player to listen to the full conversation.