Why you need to do your sums when financing a new car

Driving to the office this week I heard an advertisement pushing the new Ford Puma.

The storyline of the radio commercial involved a cheerful conversation between two people, with the final tagline about the instalment being “from R7,899 per month”.

The suggested starting price of the Puma line-up (1.0 Titanium grade model) is R569,900,while the high-grade ST-Line Vignale goes for R613,900.

Before I go on to the crux of my missive, allow me to state this is not an attack on the newest baby from the blue oval.

Though it has been discussed in various reviews that the model had been rather ambitiously priced, considering its direct rival from Volkswagen, the Taigo, has a base price well below R500,000.

Rather, this “from R7,899" promotion for the Puma prompts an interesting discussion about ways to finance a new vehicle.

There are potential savings that can be had, if one compares the numbers and looks at what is offered in the “new” section of the showrooms.

In 2024 just about every mainstream carmaker in South Africa has a financial services arm that packages special deals to make the prospect of new vehicle custodianship more enticing.

The “from R7,899" deal comes with terms and conditions. The offer is through Ford Credit and based on the 1.0 Titanium model. No deposit is required, which may hook buyers.

Scanning the specifics of the deal, the retail price is R602,707. A loan amount of R603,915 is quoted (ostensibly including initiation fees). You pay over 72 months at an interest rate significantly below prime (6.25%).

But with the 35% balloon payment, you will be liable for R211,370 at the end of the term to own the Puma outright. Including this, your total repayment at the end of the six years amounts to R771,776.

Note that also in the fine print it says “offers are risk profile dependent” and “interest rates are linked to prime and subject to change”.

So what if you were to do things a little differently? Say you want a Puma 1.0 Titanium but do not want to part with R569,900 cash upfront and still prefer to go the finance route.

You log onto your chosen car listings portal and see what options are listed. And the results may provide a pleasant surprise, if value-seeking is on your agenda.

Some Ford dealerships are listing new Puma examples from upwards of R459,890, with discounts seemingly prompted by the slow uptake of the model. As a cash deal this would be quite compelling, given the considerable saving.

According to the salesman I spoke to, assistance directly from Ford South Africa and the need to move ageing stock were reasons mentioned for the reduction in price.

If you were to finance R459,890 over 72 months, at 11.75% with a 10% deposit and no balloon payment, you would be in for R8,038 per month. That means after the term you would have shelled out R578,746, settling the finance and owning the car.

This is in comparison to the R568,728 you would have paid with the “R7,899" deal — still being liable for the 35% balloon (R211,370) should you want to keep the vehicle.

We asked Ford SA for comment on the discounts we saw.

Spokesperson Hanleigh Daniels responded:

“Ford Motor Company of Southern Africa provides a recommended retail price for vehicles which is not binding on its dealer network.

“The dealer may at its discretion determine the price it sells the vehicle for to a customer. Ford SA is offering a monthly repayment plan of R7,899 p/m with zero deposit in conjunction with Ford Credit.”

Checking the listings website we used again before publication, the example priced at R459,890 had been removed. But there were others starting from upwards of R464,890; labelled as new models.

Of course, there are some buyers out there for whom balloon payment structures make sense. And good for them.

But it certainly helps to weigh up your options before speeding to your nearest dealership after hearing a catchy radio advertisement.

The author is not a financial adviser in any capacity and is merely sharing an opinion.