Buying Your First Car? Here’s What You Need To Know

There are bound to be some pressing questions on your mind and for this very reason, we’ve compiled a comprehensive buyer’s guide focusing on the safety, affordability, maintenance and practicality when choosing the ideal car.Let’s first take a look at the advantages and disadvantages of buying a new or used car.Advantages of buying a new car

You’ll generally get a comprehensive warranty package.

No previous wear and tear, mechanical or body damage.

The dealer may offer financing at a lower interest rate.

You could be offered additional options and features.

Disadvantages of buying a new car

The purchase price is usually much higher.

Value greatly depreciates the moment you drive it off the floor.

New upgrades or features could take effect soon after purchase.

Insurance, taxes and registration fees are higher.

Advantages of buying a used car

The purchase price is lower overall and could be even lower if you buy privately.

Used cars continue to depreciate, but typically the most during the first two to three years.

You can sell it for almost the same price you bought it for if it’s well-maintained.

Insurance rates tend to be lower.

Disadvantages of buying a used car

May not be as reliable as a new car unless you buy a certified pre-owned vehicle.

Interest rates could be higher when financing.

Limited or no warranty.

Higher maintenance costs.

You can’t pre-order the car with the features of your choice.

Here’s what you should know when buying your first car1. Applying for FinanceOnce you’ve done all your homework on the car you want and you know you can afford it, applying for finance is simple. Visit the dealership where a Finance and Insurance (F&I) representative will be able to give you advice, explain everything about the loan application and help get the wheels rolling.2. There is no such thing as a silly questionDealerships have their own F&I representatives who are registered with the National Credit Regulator who will guide you through the entire purchasing process. When you go to the dealership to close the deal on your first car, don’t be shy to ask questions if you don’t understand anything. This is your last chance to do so before signing on the dotted line.As exciting as it may be to drive away in your new car, be patient and don’t rush the process. Here is another interesting article with a few more tips on buying your first car.3. Know your budgetThere’s no denying that car payments go beyond just the monthly repayments. You need to be honest with yourself as to what you can really afford. Remember to include insurance, fuel and running costs to your budget. If you can’t really afford the fuel or maintenance cost for a big 4×4, consider something more fuel-efficient and affordable. Great options currently in the market are snazzy Datsun GO and the gutsy Renault Kwid.4. Forget the debtLife is too short to worry about unnecessary debt. If you can’t afford an expensive car, be patient and avoid balloon payments where possible. If you can afford to, rather choose the shortest possible term for the loan even if it means your repayments are slightly higher. The sooner you pay off your car, the sooner you will be debt-free.5. Insurance is non-negotiableBefore taking to the road in your new car, you need to produce proof of insurance. If you have pre-existing cover, simply provide them with your document and if the dealership arranged insurance for you, they will already have it on file.You are required to maintain comprehensive insurance on the car for the duration of the financial agreement. This not only protects you and your finances, it also gives you peace of mind knowing you are covered. Your insurance will pay out the insured value of the car should anything happen which means you don’t have to continue the repayments on a car you no longer have.Consider this when car-hunting in South Africa:1. Is it affordable?Budgeting is important for many South Africans as not everyone can afford to pay the current price for new cars, not even the ‘entry level’ or ‘budget’ ones. The used car market provides many good options but you have to do thorough research before buying anything.2. How well has it been maintained?Maintenance is as important as affordability if not more as you can always plan and manage your monthly repayments but not so much the unforeseen maintenance issues.More often than not, a used car will no longer have a service plan which means the car owner needs to pay for all repairs and services out of pocket. Where possible, choose a car with a full service history (FSH) and a strong national dealer network. Make sure you can afford out-of-warranty repairs or services from new tyres and shocks to engine or transmission issues.3. What is the level of safety?Looking back in history, for a long time, only the most expensive cars had additional safety features. Nowadays airbags, ABS, EBD, impact bars and crumple zones are more common. Considering the rising death toll on South African roads over the last few years, these safety features have become more a necessity than a luxury.

Remember to check the following when buying your first car:

Condition of all safety belts – strength, intensity and resistance.

Ensure that there is a legal amount of tread on all the tyres and don’t forget the spare wheel. In some cases, you can ask the dealer or seller to fit new tyres if necessary.

Test the hooter and all the lights outside and inside the car.

Ensure that the vehicle tool kit is complete and check that the car jack is in working order.

Ask for the car’s accident history report. Some dealers may not tell you this unless you ask.

Research the vehicle’s NCAP safety rating.

4. Is it practical?Find an affordable car that is suitable and practical for you or your child. Check that the boot is big enough to hold a few suitcases and bags for a weekend away. A two-door car might seem like a good idea but it is impractical. Loading and unloading passengers is not easy, the boot is small and not much leg- and headroom.Consider what the car will mainly be used for and choose accordingly. Will it only be used to and from college or university or what about cross-country road trips? Perhaps your child is studying engineering, construction or a subject where they are likely to need something more durable and able to carry a heavy load at some point.It’s important not to just buy the first good looking car you see as you might be stuck with it for years. Be smart, be patient and enjoy the ride!

Alternative Financing Vs. Venture Capital: Which Option Is Best for Boosting Working Capital?

There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring - Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing - A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) - This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

  • It’s easy to determine the exact cost of financing and obtain an increase.
  • Professional collateral management can be included depending on the facility type and the lender.
  • Real-time, online interactive reporting is often available.
  • It may provide the business with access to more capital.
  • It’s flexible – financing ebbs and flows with the business’ needs.

It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?