If you're thinking of buying a car, now is actually a very good time to do so. Dealerships are over supplied in general, it's costing them money each day to hold the vehicle and cars are in stock longer costing dealerships money. As a result dealers are ready to do deals and offload cars. Furthermore rates are historically low so repayments on your purchase are lower. In December 2013, KPMG warned of an oversupply threat in the new car market in 2014. As a result, more cars are selling leading to an oversupply of used cars. As a result, when your vehicle becomes a 'used car' at the end of it's loan term, it's value will drop faster than ever before.
SO BE CAREFUL of your residual...
The average client for a car loan will take out a five year term with a 30% residual, this is because the normally the value of the car will be 30% of it's original purchase price after 5 years. When the car owner goes to sell or trade-in, they can cover the cost of the residual without having to cough up any cash. Considering this potential oversupply, I'd advise you to be careful and cautious about how much you leave in the residual and be aware that this payout is due in five years time. Options to deal with this are:
- Put in a higher cash deposit when you purchase
- Some financiers allow above the minimum repayment required which will reduce your residual
- Always find out your residual dollar figure, not just the percentage
- Structure the term around how long you'll hold the car for
- Consider no or a lower residual
- We highly recommend you discuss the options with your accountant