Pitfalls of buying a car from dealers without due diligence [16-04-2012]
Owning a car is a lifetime dream for many. The car helps us to move with ease and convenience. When buying one, it should be comfortable and dependable.
However, getting the right price for a dream car can be challenging. In some cases due to the huge financial outlay involved, failure to plan well can lead to big losses.
People, especially first time drivers eager to sit behind the wheels, have ended up engaging in lopsided deals that have cost them dearly.
Peter Kamau, a high school teacher vividly remembers how his colleague unknowingly got into a car buying deal with unscrupulous dealers that left him financially drained.
"My colleague bought a car from a dealer a few months ago. The dealer organised for a financier but when he started making his first installment, the financier shifted goal posts and asked for more."
He adds, "Another shocker awaited Kamau. After dutifully making monthly repayments for almost a year, he discovered the car dealer had secured a bank loan using the car as collateral. Now the bank was looking for the car as the loan was not being serviced."
"My colleague felt cornered and tried to wriggle himself out of the situation but it wasn’t easy. He had to repay the money following newly renegotiated terms with the bank. Finally the car cost him far much more than he had anticipated," says Kamau.
James Mbaria, a car dealer along Ngong Road in Nairobi warns car dealers come in different shades. "There are those who are in serious business and their operations are genuine. However, there are others who masquerade as dealers but their businesses are to swindle innocent buyers."
But he is quick to add that the problem is not only found with car dealers. "We have some dishonest and disingenuous people in all forms of businesses, yet others are good and dependable. The rule of the game is that you have to take care and time before you commit yourself," he observes.
He says car dealers are usually aggressive and persuasive when marketing. "They are indeed among the slickest salespeople thus hard to beat. That is why many people fall into their traps," says Mbaria.
Henry Mbichuria, a Nairobi based banker says financing of cars organised by car dealers can at times be expensive. "The dealers will charge more as most of them are financed by banks and they want to recoup their money and make some little profit from the loan."
Jackstone Ochola, a financial adviser concurs with other financial advisers.
He says buying a car financed by a phony dealer can be very expensive. "Such dealers tend to charge very high interest rates. By the end of it all, you can end up paying more than the car would have cost."
However, Ochola advises those intending to buy cars from dealers to seek guidance and advice from friends before bagging the deal. "You can ask your friends who have bought cars previously to recommend reputable dealers to you.
Although this may not be foolproof, at least chances of avoiding a phony one are higher, " he adds.
He adds, "Before going for a financier, always take time and research the options that are available to you. The rule of the game is that you should shop for money before you shop for the car, yet many do the reverse."
Ocholla argues that it is important to consider the terms given by the different lending institutions or the dealers and that one must be keen to scrutinise the fine print to detect hidden charges.
When being financed by a lender to buy a car, first evaluate yourself whether there is enough income to repay the loan.
Borrowing money to buy a car might be an easy task but making the monthly payments can be draining if you do not have a steady income," advises Ochola.
He opines that people ought to understand ‘full’ terms and conditions of the financing.
Like the monthly repayment rate, payback time, penalties for late payment and the total interest for the loan. "It is a good idea to go for a financing option where you repay the money in the shortest period possible. Such a financial plan attracts less interest meaning the facility is not very expensive.
Interest charged on money repaid over long periods can be inconceivably large," says Ochola. One needs to have an upper hand in the negotiations when handling the car dealer and negotiate from a point of strength by asking questions on unclear issues.
"Do not mind that some questions you may ask might appear misplaced. In the end, you will emerge smarter than many people who sign for financing plans that are in favour of the lender," says Ochola.
"If you are planning to buy a car, plan well to avoid traps many prospective buyers fall into. It may not be a bad idea to turn to a financial adviser or credit counsellor for advice to help you avoid the many pitfalls in the process of buying a car," wraps up Ochola.
Source: The Standard
article by: PETER KAMURI