If you are considering buying a car, try save up so that you can put down a deposit. This will reduce the total cost of the car.

By saving up a deposit, you could qualify for a better interest rate. A bank will view the fact that you were able to save for a deposit as a positive factor when assessing your risk profile. You have shown an ability to manage your finances and you have lowered the risk to the bank as your car debt will be less than what you paid for the car.

A deposit will also lower your monthly instalments as you will have less to repay, and you will be paying less interest.

For example: you buy a R150 000 car and finance it over 60 months:

With no deposit:

• Your monthly repayment is R3 547
• The total repaid over 60 months R212 820

With a 10% deposit (R15 000)

• Monthly repayment is R3 202
• Total repaid over 60 months R192 120
• Total saving less the deposit: R5 700

Or you can shorten the financing period – and save more money

For example, you put down the R15 000 deposit and finance the car over 54 months

• Monthly repayment R3 447
• Total repaid over 54 months: R186 138
• Total saving less the deposit: R11 712

If you use the deposit to shorten the financing period, your R15 000 has in effect given you a tax-free return of nearly 80% in just five years. When it comes to financing, the lower the interest rate and the shorter the time frame, the less you pay.

When buying a car there is one rule you should always stick to: never take a residual or balloon payment to lower your monthly instalments. Unlike an upfront deposit, that balloon payment will accrue interest, costing you more over the long run.