Understand the fine print

I often receive complaints from people who have signed agreements they haven’t fully understood. Unfortunately there is little recourse for the consumer in such cases. Take time to read the fine print.

Fine printAs consumers we tend to be very emotional about our purchases. We are so excited about the new car we are about to drive off in that we simply sign lots of pieces of paper handed to us by the dealer without really reading or understanding them.

We are in what behavioural economist Dan Ariely described in his book Predictably Irrational, as being in a “hot state” where our emotions are aroused. In this state we tend to make irrational decisions. This also makes us more susceptible to sales tactics like being pressured into making the purchase immediately or we could “lose the opportunity” ‒ sales people will tell you that there is someone else interested in buying your coveted item as a ploy to get you to sign. Or we get into a money “high”, where we figure that since we’re already spending R100 000 on a car, why not throw in a few extras?

This is exactly what happened to Walter, who ended up paying over R127 000 for a second-hand bakkie with an advertised sale price of R99 900.

Most of the extras were in the form of a maintenance plan, warranty and windscreen protection (see table below). There is nothing wrong in principle with these extras – it’s not as if Walter was adding on fancy improvements like mag wheels or leather trim, which is often the case when buying a car.

fine print tableHowever, Walter was not really aware of what he had signed up for and has never even used the maintenance plan that he had paid for, nor understands the various insurances he has taken out.

“The paperwork wasn’t properly explained as it was shown and read to me from the computer screen with arrangements that it would be emailed. The maintenance plan wasn’t explained nor was the “Crystal Fusion” which I still don’t know what it is,” explains Walter. He was also unaware of what the “Platinum Bumper to Bumper” warranty he had taken out actually covered. There was also a service and delivery fee of over R2 000 which again, Walter was unsure about.

The problem is that Walter signed and agreed to all of these extras and has no recourse except to cancel, which also has cost implications. While the salesperson did go through the various add-ons with him, the very large amount of information provided all at once would be difficult for anyone to fully process, let alone remember.

When making a big purchase we make far better decisions in a “cold state” where our emotions are not in play and we can work with just the facts to make better decisions. If you are buying a car or even taking out a personal loan, take time to move into a cool state before you start signing. Ask for the paperwork to be printed out and then read through it at home, not in the dealership. Write down any questions you have and make sure you fully understand everything before you sign.

Limit the costs of car plans

In Walter’s case, as he was buying a second-hand car, it was not necessarily bad advice to take out additional protection in the form of a maintenance plan which covers the cost of the regular services, as well as a warranty which protects against mechanical or electrical breakdowns. They are effectively insurance policies against future unexpected costs. But you need to decide if they are cost-effective solutions.

Don’t add it to the loan amount: In this case, Walter did not pay for the plans upfront, but these were capitalised into his loan and therefore incurred finance charges. These finance charges mean that Walter will have paid R36 939 in total, or R513 per month for the 72-month loan period, even though the maintenance plan was only for 24 months. If Walter had paid for the maintenance plan and warranty upfront and had not capitalised it into the loan, he would have saved himself R10 000 in interest payments. Alternatively Walter could have opted for a debit order payment rather than paying upfront, which has the advantage that he could cancel if he could no longer afford it.

Do your calculations: Find out the average cost to service the car and then calculate if the maintenance plan is worthwhile. Walter paid R15 136 for his maintenance plan but it only covered him for the next 24 months or 30 000kms. Paying for the service himself may have been more cost effective and he could have put the R513 saving each month into an emergency fund in case he had to replace a major part such as brakes or shock absorbers.

Understand service plan, maintenance plan and a warranty

Restrictions and limits also apply on both maintenance and warranty plans which you need to be aware of.

Service Plan: A service plan pays for only specified aspects of the recommended scheduled services of your vehicle.

Maintenance Plan: This covers everything that is included in a service plan plus the replacement, maintenance or repair of specific wear-and-tear parts, when necessary. This means that you won’t, during the duration of the plan, have to worry about most unexpected parts and labour costs such as replacing brake pads or shock absorbers.

Fine print: If you miss the second service of your vehicle, the plan is usually cancelled. Check the fine print but usually a 1 500km variance is allowed before or after the service interval kilometre specified. A 3- day variance is allowed when the vehicle is serviced annually.

Warranty: A warranty on a second-hand car can be a good investment as it will protect you against unexpected mechanical and electrical faults, although exceptions always apply so again make sure you read the fine print. The extent of the warranty is determined by the age and mileage of the vehicle. For cars older than three years, there are limits on the amount paid out.

Fine print: You cannot be in a better financial position than before the claim. So where replacement parts are fitted to replace old worn parts which have suffered a breakdown and your vehicle is now in a better condition than it was before the breakdown, you may be required to pay towards the cost of the parts. Like the maintenance plan, regular servicing is required in order to keep the warranty. Check the fine print but usually the administrator requires that after each service, you must forward the invoice showing the covered vehicle’s details, your policy number and the current odometer reading to the administrator’s claim office. You also have to use an authorised service centre and you certainly cannot self-service!

This article first appeared in City Press.

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