The cost of buying a car via auctions vs buying through a bank loan
While auctions can offer potential savings, they can also be more expensive in terms of interest rates and the competitive bidding process.
A 1959 Chevrolet Impala 4 door, photographed 1 December 2020 at the Creative Rides showroom in Bryanston,. This is one of the 140 classic cars belonging to the late businessman Louis Coetzer which will be auctioned on Saturday. His collection covers muscle and classic cars with many marques and models. It is one of South Africa’s biggest ever estate collector car auctions. Picture: Michel Bega
The rising cost of living is pushing consumers to seek cheaper cars. When it comes to purchasing a car, there are different avenues to explore, including buying a car through auctions or obtaining a loan from a bank.
Understanding the cost implications of each method is crucial to making an informed decision.
Buying a car at an auction
Auctions can offer the potential for good deals on vehicles.
“It’s important to note that cars found at auctions are often those that failed to sell elsewhere. While this doesn’t necessarily indicate a flawed vehicle, it’s a factor to consider,” said Jeff Huang, remarketing sales supervisor at Westlake Financial Services.
One aspect of auctions that can make them more expensive is the interest rates.
Unlike buying a car through a bank loan, where interest rates can be negotiated and may be lower, auctions typically require immediate payment.
This means that buyers may need to secure financing through other means, such as personal loans or credit cards, which often come with higher interest rates.
According to Chief Economist of the Efficient Group Dawie Roodt you can go to an auction, buy a car and request for financing from the bank.
It’s important to factor in these additional costs when considering the overall expense of buying a car at an auction.
Additionally, the competitive bidding process at auctions can drive up prices.
Auctions attract professionals who are experienced in bidding and know the tricks of the trade.
This can make it challenging for novice buyers to secure the desired vehicle at a desirable price.
Furthermore, there is limited time for inspection and no opportunity for a test drive, which can result in unforeseen issues or hidden costs.
Roodt said if you buy a car at an auction, you must be well informed about both the car and how auctions work.
According to Nerd Wallet one of the ways to assess the risk of bidding on a car is to use the “stoplight system”.
“Auctions usually have this system with green meaning the car has no known defects, and arbitration is available to deal with undiscovered mechanical issues.
“Yellow refers to the vehicle having known issues not subject to arbitration.
“And red signals that the vehicle sold is not a very good investment because it is not in good condition.”
Buying a car via a bank
Roodt said one of the advantages banks often offer are auto loans to facilitate car purchases.
However, banks may have specific requirements and processes for obtaining a car loan, which can vary depending on the bank and individual circumstances.
“Interest rates, loan terms, and credit score requirements are some of the factors that can influence the overall cost of financing a car through a bank,” said Roodt.
ALSO READ: Open, closed… sold! How auctions work
On the other hand, buying a car through banks involves obtaining an auto loan, the terms of which can impact the overall cost of ownership.
This means that if the client fails to pay the bank, the bank has the right to repossess the car.
Furthermore, interest rates are determined by the client’s level of risk.
“If the client has low risk, the banks are happy to give you low interest. And vice versa if the client is a high risk, interest is likely to be higher.
“That is the general rule, so it does not matter where you buy. It depends on who the client is, that determines the interest rate you will pay mostly but not always,” Roodt said.