29 April 2022: A show of hands please ... how many of you have financed a car and traded it in for a new one without understanding what a breakeven point is? The breakeven point is one of the most commonly overlooked factors in vehicle finance, and while it’s entirely possible to upgrade your car every few years without ever knowing the meaning of the term, a basic understanding of the concept could help you avoid financial trouble. Lebogang Gaoaketse, Head of Marketing and Communication at WesBank, explains the basics: “It’s very simple really. When you borrow money from the bank to buy a car, there’s a certain period of time that needs to pass before the amount you owe matches the trade-in value of the car. This is your breakeven point,” says Gaoaketse. “The reason it’s important to know your breakeven point is because this is the time when it becomes most cost-effective to trade-in and enter a new finance agreement on a new car. If you trade-in too soon when you owe more than the car is worth, the difference will either need to be settled or rolled into the new finance terms. Rolling existing debt into a new car loan is a potentially dangerous situation, as it will push the breakeven point of the new car even further out.” Breakeven points will differ on a case-by-case basis and are reliant on various factors such as respective deal structures, finance terms and deposit amounts. The vehicle itself is also an important part of the equation, as specific models and derivatives together with their specific depreciation rates and trade-in values over 24 to 42 months will vary. In general, it should take between 45 and 49 months to break even on a 72-month car loan. WesBank’s data shows, however, that South African consumers tend to trade-in too soon, after only around 38 months, meaning they have between 10 and 14 instalments to go before breaking even. There are many factors which influence respective customers’ breakeven points. The easiest way …
Source: MyPR International