South African car owners under pressure 

South African car owners are under immense financial pressure, with a significant share of first-time buyers unable to repay within the first year of owning a vehicle.

Many are also turning to cheaper alternatives, sometimes because they cannot make repayments, while others choose not to upgrade their cars and would rather run them for longer. 

Doret Jooste, head of money management and advisory at Standard Bank, said motorists have been caught off guard by elevated interest rates. 

In particular, first-time buyers have been caught out, with 5.7% being unable to make repayments within one year of buying a vehicle. 

Jooste said Standard Bank had recorded an increase in cases where buyers cannot make repayments and shift to a cheaper car soon after purchase. 

Data indicates that this trend is industry-wide, as motorists face pressure from a rising cost of living and higher repayments due to elevated interest rates. 

Jooste noted that for many, a car is their first major asset, symbolizing newfound independence. However, this significant purchase often leads to emotional decisions, especially during economic uncertainty. 

Many first-time buyers overlook the financial implications and may not realise how expensive the car will be with interest rates at a 15-year high. 

Standard Bank also flagged an increase in the popularity of Chinese cars as motorists hunt for value and shift away from more expensive European vehicles. 

Car prices have also increased significantly in recent years, pricing out many buyers. These two factors have resulted in a significant buying-down trend. 

This trend means that South Africans buy new cars less frequently and do not upgrade their vehicles to save money. They would rather look for a cheaper alternative. 

Despite overall retail sales facing pressure, the number of Chinese cars financed by Standard Bank Vehicle Finance has consistently increased year-on-year since 2022. 

Standard Bank’s sales data shows that the proportion of Chinese car brands increased from just over 6% in 2022 to 7.4% in the first half of 2024. 

In the second quarter of 2024, new vehicle sales dropped by 9.6% compared to the corresponding quarter in 2023. 

During this same period, Standard Bank Vehicle Finance financed more new Chinese car brands, with GWM Haval being the most popular Chinese brand financed since 2022, followed by Chery and BAIC.

Red flags 

Jooste highlighted some common pitfalls associated with buying a car that motorists should avoid to ensure their loan is affordable and they do not fall into arrears. 

She noted that buyers often purchase a car based on the highest monthly repayment they can afford and do not factor in other expenditures such as insurance. 

The rule of thumb is to allocate up to 20% of monthly income towards all car-related expenses. “If your monthly income is R25,000, your car instalment should be lower than R5,000 to make room for insurance and fuel costs,” Jooste said.

Currently, Standard Bank data shows that middle-income customers spend an average of 20% of their monthly income on the vehicle instalment alone. 

However, more than half (51%) of this client base spends more than 20% of its monthly income on repayments.

The higher income groups in the bank’s Prestige and Private Banking client bases spend an average of 13% of their monthly incomes on vehicle instalments. 

Even within this group, one in five individuals allocates more than 20% of their income to car repayments. 

One way to reduce your monthly repayments is to make a sizeable deposit when purchasing the car. Jooste suggested buyers aim for at least 10% to 20% 

You can also add a balloon payment to lower repayments. This means you defer the payment of the balloon amount to the end of your contract as the last repayment amount.  

Customers who cannot afford to pay the balloon in full at the end of the loan term can respread and pay off this amount for a period between 12 and 36 months.

Jooste also recommended motorists turn to debt relief if they cannot afford their repayments, as not making these payments will harm their credit score.

Banks and financial institutions offer debt relief solutions to assist clients who may default on their repayments or those who have defaulted.

They commonly offer solutions like spreading the arrears over the remaining loan term, payment holidays, debt consolidation, or extending your loan term.

These solutions may increase your loan term over time but they’ll bring relief to your monthly repayments. It is important to be proactive in engaging your credit provider to avoid negative impairments on your credit history.

Standard Bank also offers its EasySell service to facilitate urgent sales for customers needing assistance. Partnering with car dealerships, they market and sell vehicles nationwide.