Buying a car is really about what you need, not what you want, so be sure to get a car fit for purpose and work out your budget beforehand.
A poorly selected car purchase can easily cost you thousands of dollars.
The tips below might help.
1. Avoid borrowing to pay for your car
Only in the most unique situations should you borrow to buy a car – perhaps that’s the only way you can get to and from a new job.
This is because interest rates on car loans rapidly hike up the total amount you pay for a car. Car loans usually have at least a 7% interest rate, meaning that the actual amount you pay is a lot higher than the original price. A bonus of paying in cash is that many dealers will accept a lower price for the car as they receive the whole amount instantly.
2. Buy a used car
Racking up a huge car loan to get a flash, new car seems like an even worse idea when you realise how much and how quickly these cars drop in value. Although buying a new car probably means you avoid the risk of buying a lemon, a car will depreciate in value the most in the first few years of its life. In fact, as soon as an average new car is driven off the lot, its value drops by 15 to 20%. For this reason, it is generally believed that the best time to buy a car is when it is 2-3 years old, as it has had its biggest drop in value, but is still new enough to be reliable.
3. Consider ongoing expenses
When buying a car, many people don’t realise how much the car will cost in the long run. This can include:
Finance repayments – if you’ve decided to take out a loan or go with financing, you will need to budget for repayments.
Fuel. You want to consider how fuel-efficient the car is as you don’t want to be paying hundreds of dollars every time you fill up.
Vehicle license fee, commonly called a “rego” – currently around $109 a year for standard cars.
AA membership – if you want to join the AA for breakdown assistance and membership benefits such as loans and inspections, factor this in – it’s $79-$89 per year in the first year.
Warrant of Fitness (WOF) this costs around $40-$60 and any failures will need to be fixed. This includes things like brake pads, worn tyres, broken seatbelts etc
Servicing – an optional expense, but worth it if you want to keep your car in good health.
Maintenance and repairs. European cars usually have more expensive parts that can hike up total ongoing costs. You want to look out for a reliable car that won’t cost the world to keep on the road.
Diesel Cars surcharge – diesel is much cheaper than petrol at the pump, but there is a road user charge (RUC) on diesel.
The signs it’s time to replace your current vehicle
Cost of repairs. We don’t always get to decide when to change our vehicles. If major repairs are needed, or if regular maintenance is starting to add up, they can often be uneconomical to fix. For example, the cost to remedy an engine failure can sometimes come in at half the vehicle’s financial worth.
Lifestyle changes. A growing family could mean it’s time to upgrade to a minivan, “people mover”, or “soccer mum wagon”! For those at a later stage of life, a retiring couple may be able to sell two cars and replace them with one.
Safety. If safety is a priority for you and you’re questioning the safety features of your existing (ageing?) vehicle, then it’s probably time to get an upgrade.Take a look at some of the latest safety features that are now available on models in today’s market and compare them to what your car is equipped with.
4. Do your research
If you have a specific car in mind, research what similar cars are selling for. This will give you a point of reference as to whether you're getting a good deal. From here, you may be able to haggle the price of the vehicle down. If you are going to look at a used car, it is a good idea to take a mechanic with you to ensure that everything is running smoothly and there aren’t any immediate repairs that will need to be completed. There are several companies that will do pre-purchase vehicle inspections to give you peace of mind.
There are a lot of pre-purchase checks to do if you decide to buy privately - protecting yourself with thorough checks is the best way to minimise the risk of getting burnt.
A lot of vehicles here are imported from Japan, and you can get assurances by asking for the importation/export sheet which indicates its condition - many buyers don't know about this.
A reliable guide to New Zealand’s cheapest (and safest) cars to run is available for free. The government’s RightCar site has the backing of extensive research, and has a free database of running costs for many models. You can look up 500+ makes and models and get their safety rating and expected fuel cost per year.
Here are some general running-cost rules:
Smaller engines are cheaper to run as they use less fuel, though small engines are most efficient for town use and highly inefficient travelling long distances at speed.
Petrol cars are usually cheaper to buy than diesel equivalents. Diesel engines tend to use less fuel than the same petrol model, and more economical than their petrol counterparts as a result – even after paying RUC.
Manual gear cars are cheaper than automatics. Though the extra work to save yourself changing gears may be worth the extra cost upfront to make driving a little easier, especially if you drive on busy roads – such as in Auckland traffic! Generally, automatics cars are more fuel-efficient than the manuals as the car knows the most suitable gear to drive in.
Electric and hybrid cars are much cheaper to run, but they cost a lot more to buy. However as more of them enter the NZ market, prices are expected to fall. There will also soon be a resale market – right now they are too new for us to compare to petrol and diesel cars, and there are also question marks over how well the batteries in them will age.
Car insurance costs vary significantly depending on your situation, such as your car, driving history, and age. If you want to spend as little as possible every year on insurance, a popular vehicle with cheap parts will be less expensive to insure than buying a luxury 4X4. Furthermore, a small European car will usually be more expensive to insure than a bigger Japanese car because of costs to repair and parts. Age and size are also factors - a new small car would be more costly to repair than an older wagon or SUV-type vehicle.
5. Make use of people you know
When looking to buy a car, take along someone who knows something about cars. They can help determine if you are getting a fair deal. Your friends and family can also share experiences they had when purchasing a car, which can help ensure that you don’t end up with a lemon – remember to consult those around you.
6. If it’s too good to be true, then it probably is
Finding a car you want that is $3,000 cheaper than similar cars is a sign that you should be very hesitant – there is a reason that the price would be that low. There could be something faulty with the car, or it could be stolen. There could be valid reasons for the price reduction, but just remember, it may mean that you will have to fork out extra funds to get something repaired.
Buying from a dealer may help. You can go down the private sale route, but you're only protected if you buy a car from a dealer.
The bottom line
Overall, there are many things to look out for when you purchase a car, not only immediate costs or ongoing costs, but any repair costs added on top of that. Being aware of these things can save you a lot of money, stress, and hassle. Make sure that next time you buy a car, you think about the small things that can add up to make your purchase easier and cheaper.