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« on: September 17, 2012, 01:09:36 pm »

The real cost of a ride

Published: Sunday | September 16, 2012 0 Comments

Chad Bryan, Gleaner Writer

The advertisement for the car lists an attractive purchase price, which you cannot come up with all at once, but then there is always financing, with any number of banks and credit unions offering automotive loans.

Suddenly, the purchase price has increased. And this extra expenditure is without taking into consideration spending on fuel, insurance, scheduled maintenance and any repairs which may become necessary.

Automotives visited a popular Corporate Area car mart to discover the actual cost of purchasing a vehicle, coupled with the cost of the insurance. Most of the vehicles, which ranged from Nissan Lafestas, Honda Fits, Suzuki Swifts to a BMW X3 and X5, among a few others, were advertised as being on special.

After perusing the lot with a salesman, Automotives identified a red 2007 Hyundai Getz, which originally cost over a million dollars and was now being sold for $870,000. The financing period was four years at $19,000 monthly, along with a downpayment of $174,000. That added up to a total of $1,086,000, $216,000 more than the listed price. While that may not seem like a lot of money, it is 25 per cent more than the purchase price.

This was at an interest rate of 11.5 per cent.

The car mart also offered an on-the-spot insurance coverage for any vehicle purchased as well as the option of financing through Scotiabank or National Commercial Bank (NCB).

Big price hikes

A personal banker with whom Automotives spoke said that while the figure varies, the percentage above the cash price that is repaid on a car loan tends to be in the region of 25 to 30 per cent, although "in extreme cases, it can go up to as much as 40 per cent".

"Of course, the longer the loan term is, the more you are going to repay in the end, although the monthly installments are naturally lower," he said. "If it is easier for you, chances are, it works out more expensive in the long run."

However, he pointed out that determining the cost of a car purchased through financing is more than simply adding up the figures and determining the difference between the purchase price and what is repaid to the lending institution.

"What you also have to look at is difference between the value of the car at the end of the loan period and what the borrower will have repaid. Cars depreciate very rapidly, some retaining value better than others, of course, but when you look at what a car can be sold for when it is paid off and the amount that is actually repaid, the gap is vast," he said.

He also pointed out that investing some of the money put into car loan repayments would, over time, build into a handy nest egg.

Insurance costs

At the dealership, an insurance agent quizzed Automotives about the cost of the vehicle identified, its age, the age of the driver, the occupation of the driver and the age of the licence. For someone aged 23 who has had a licence for six months and works in a government ministry as a communication specialist, insurance on a 2007 motor vehicle cost $225,600.43 per annum. Up to eight months could be taken to pay the insurance fee.

In June 2010, The Sunday Gleaner reported that interest rates on motor-vehicle loans were at a 15-year low. Checks with financial institutions in the second week of that month showed interest rates of between 14 per cent and 19.95 per cent, depending on the age of the vehicle.

Then one institution was offering 95 per cent financing on new vehicles, with 84 months to repay at a 16.95 per cent rate. This was down from 19.25 per cent quoted back in October 2009.

In March, at the Automobile Dealers Association (ADA) Motor Show, RBC had a striking 9.99 per cent financing offer on new cars, with Scotiabank going a fraction of a percentage point better with 9.5 per cent.

Currently, car loan interest rates are generally in the low to mid double digits.

" Be courteous to all, but intimate with few; and let those be well-tried before you give them your confidence. ADAPTED" Renewal of commitment needed
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