Afford a new car

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New car, old car?

How will consumers afford a new car?

Vehicle finance periods could be extended further in months to come as consumers try to decrease monthly installments to manage their cash flow. Is this a wise way to afford a new car?
Since the National Credit Act was implemented in 2007, vehicle finance periods moved from less than 50 months to around 70 months. Some financial institutions even offer terms up to 84 months.
Although consumers tend to pay off their contracts early, a further increase in the repayment period could have significant interest effects for vehicle buyers. It may constrain them to keep vehicles for longer, as the breakeven point (outstanding loan amount equal to the trade-in value), will be deferred.

Afford a new car: Trends

Statistics show the percentage of vehicle finance applications with deposits have declined over the last two years, while the applications with balloon payments (residual values) as well as the average contract terms, have increased rapidly.
Though some people are able to trade in their cars and acquire a deposit for the next one, this number is decreasing. People will definitely keep their cars longer. Sales of new vehicles declined in recent months as disposable income has reduced. New vehicle sales is expected to decline by 3% this year, while new passenger car sales could drop by 5%.
To afford a new car, consumers are buying smaller, fuel-efficient cars and there are still many first-time buyers coming into the market. Small cars ( to 1.7 litres) made up 67% of the total passenger market last year.

Afford a new car: Fuel prices

Fuel price increases have an effect on the buying trend. Petrol price increased by 287% and diesel price by 417% since January 2001. Compared to January 2010 prices have risen 83% (petrol) and 89% (diesel). Sales of hybrid cars increased sharply between 2010 and 2012, but have come down again, as hybrid cars are still expensive and the average buyer can’t afford it.
A tough environment is expected during the next 18 months and interest rate increases are expected. Consumers still have lots of debt and a rise in interest rates within depressed economic activity, will have unwanted impact.

You may have to keep your existing car somewhat longer, or you may be lucky enough to afford a new one. Whatever the case, you must always have Car Insurance!