Fri | Dec 6, 2019

The real cost of a ride

Published:Sunday | September 16, 2012 | 12:00 AM

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.