I am also in the car market, but based on your presentation, I believe the deposit has a well-defined certainty hence seems to be the best option due to the following reasons: 1. An investment account incurs broker and administrative fees that were not included in the initial calculation. 2. There is no guarantee that your return on investment will be a fixed 8%; it can fluctuate either higher or lower. (uncertainty may result in unnecessary stress). (invest money that you are willing to loose) but save money that you really need. 3. The losses and gains calculated on the initial deposit will remain constant. 4. Your return on investment is likely to lose value due to inflation, as the 8% return will be reduced by the annual inflation rate and the investment fees.
Don't waste your money with a deposit. pay additional monies into the bank and tell them to use it to reduce the installment. it wont take 50k to see a good difference. literally R500 maybe 6 times a year. now there you go giving the bank 50k of a deposit for something thats only going to lose value.
Wow! I'm so overwhelmed by this information. Thank God I found this channel. LOL I will definitely recommend it to friends and family Thank you Yvonne!
Great educational video I think in your example, it maybe the case that the balloon option is better than deposit. However mostly new first time car buyers go balloon not because they have the deposit and will use wisely and invest to rip the benefits of compound interest and opportunity cost, but rather to buy cars that they can not afford then having to source or finance the balloon at the end which I think defeat the purpose and becomes even more expensive.
This is helpful, thank you. I don't even know we could calculate our estimates. Would you recommend paying like R500 extra every month on the installment?
Thanks for the video. Suggestion: Instead of putting "Investor's View" in the title, you should also include "Decision Analysis". Add it to all the videos in the Decision Analysis series. People will welcome anything that will help them make a financial decision.
If I may make a point here; consider the interest rate on the car vs. the APY of the interest bearing account. If the interest bearing investment account yields lower than the interest rate on the car you are in a losing situation. Please correct me if I’m wrong. 🤓
Good question! I’m setting up a series of workshops and a mentorship offering where I can share my opinions but for more comprehensive support I suggest seeking a registered Financial Advisor - your first consultation with them is always free from what I know. I recommend Sheila-Ann Robey or Tsungai Masendeke both exceptional and both on instagram.
Hey! I would start by creating a budget, then if possible set up an emergency fund (your safety next) by opening a high yield savings account with your bank (usually easy through your app but you can ask your bank for options available to you) then automate for a payment every month for as much as you can afford based on what you see from your budget. I would save about 10% in the High Yield savings Account until you have as solid safety net 3-6months of your living expenses. Then concurrently I would invest at least 10% or as much as I can of that 6k through a Tax Free Savings Account like the one I use by EasyEquities (or you can use Franc or any other platform really - but those two are simple to use), by buying ETFs like the Satrix 40 ETF(STX40), Sygnia Itrix S&P 500 ETF(SYG500), etc. (I would personally start with these or any ETF that tracks the S&P500 and Top 40). Given I am not a financial advisor I think before you start implementing all this you should speak with a qualified financial advisor for clarity 🤗 Hope this helps!
Lets take a car finance of R200 000 and an interest of 12.75% Scenario 1 Deposit R100 000 Balloon R0 Financed Amount R101 207.50 incl initiation fee Total interest R49 079.57 Total Payment R150 287.07 (with this amount paid to the bank the car is mine)
Scenario 2 (Same car cost, same interest) Deposit R70 000 (I don't pay R100k DEP, I take R30k and invest it) Balloon R30 000 (15%) Financed Amount R131 207.50 Total interest R72 029.57 At the end of 6 years I have paid R203 237.07 to the bank (the car is still not mine, I still need to pay R30 000 balloon to the bank and I pay it) Total cost R233 237.07 (now the car is mine) After 6 years, my R30k is mature from a compounding interest savings of 8%, I get R48 405 I subtract it from the money I paid to the bank and it gives me R184 432 and it's still R35000 more than scenario 1
I like this! Thanks for your question! I ran the numbers thoroughly but let me walk through your assumptions using my logic. The main difference in approach I am seeing is that I am considering the opportunity costs of paying a deposit to make my decision while most people would only look at the real costs. Anyway, let dive in, see below:
Scenario 1: The total you would pay for the car including the deposit is R250 287.07 to own the car. However when you are making an important decision like this you would need to consider the real costs and opportunity costs of put R100K in a depreciating asset; so for me the real costs would be the deposit itself of a R100k and also the opportunity cost of putting that deposit. The Numbers: If I am using the best rate from say Access Bank for R100k for 6 years at 10.45% which is better than the the average S&P500 return btw (source: www.ratecompare.co.za/deposit/best60month-100) compounded annually that would be R186.7k. So if I did not put the R100k in the car and invested instead I would get R86.7k in interest from my fixed deposit savings account so technically the car would cost me only R207 181.35 because I would get R86.7k back in returns (vs a sure total payment of R250 287.07 with no other returns to speak of) - as difference of R43k. OR By putting a deposit my savings would be R43585.28 (i.e. R293872.35 (without deposit) - R250 287.07 (with deposit)) BUT if I didn't put a deposit and saved the money instead my position would be R292872.35 (the full cost I paid to own my car without a deposit) - R186 691 (the full benefit which is the compounded return on the R100k I chose not to put into my car to save on interest - I would still have my money and interest on it) = R107 181.35. Technically, if I didn't pay a deposit and saved the money instead I would only pay R107 181.35 for my car vs a CERTAIN cost of of R250 287.07 where I would not benefit from any compound returns at all. Another way of looking at it is would be: Can my savings or investment returns give me more > than the total interest and instalment savings; and in this case the answer is yes because R86 691 is more than R43585.28 which is a R43.1k difference, so I would not sink my hard earned R100k as a deposit in a car that will probably have a low book value at the end of 6 years anyway. In your Scenario 1: after looking at the cost-benefit analysis I would not pay a deposit. What do you think?
Scenario 2: For this one, by putting a deposit and balloon of 15% I would save R46642.64 (i.e. the R293 872.35 (without a deposit and balloon) - [R303 237.07 (including the 70k deposit and 30k balloon) - R56 007.36 (the compounded return of the R30k with Access Bank for 6 years at 10.45% (source: www.ratecompare.co.za/deposit/best60month-10)) which would equate to R247 229.71] BUT again, if I didn't pay a deposit or balloon and invested the R100k I have instead the savings/investment returns would be more than the savings I would make from putting the 70k deposit and then a balloon payment after investing the 30k; so also in Scenario 2: I would not pay any deposit but put the R100k I have in a high yield savings account or in an investment that would yield a higher return. Do you think this is a good way to look at making your financial decision on your car especially whether you should pay a deposit or invest the money instead?
Never pay a deposit guys. your throwing thousands to a bank for something you'll probably never own 😂. the Best way to reduce your installment is to pay an additional amount randomly to the bank, and tell them to allocate the money to reduce the installment. if you don't twll them they'll allocate it to the interest/ballance. also it will make a bigger difference that tens of thousands of a deposit or a risidual. in my experience. a simple R500 now and then (e.g 5 times a year).
I agree with you 👆🏽I managed to reduce my car instalment and interest rates, and paid it off quicker by paying extra amounts from time to time. No deposit and no balloon works better if you don’t have cash!
Great content. I have been educated. But I would have loved to see the calculations that you did.
This is helpful actually considering purchasing a car
Glad you found it useful! All the best 😊
I’m glad I watched this video, you’ve brought another perspective I didn’t consider regarding deposits.
So glad it was helpful! 🤗
I am also in the car market, but based on your presentation, I believe the deposit has a well-defined certainty hence seems to be the best option due to the following reasons:
1. An investment account incurs broker and administrative fees that were not included in the initial calculation.
2. There is no guarantee that your return on investment will be a fixed 8%; it can fluctuate either higher or lower. (uncertainty may result in unnecessary stress). (invest money that you are willing to loose) but save money that you really need.
3. The losses and gains calculated on the initial deposit will remain constant.
4. Your return on investment is likely to lose value due to inflation, as the 8% return will be reduced by the annual inflation rate and the investment fees.
Don't waste your money with a deposit.
pay additional monies into the bank and tell them to use it to reduce the installment. it wont take 50k to see a good difference. literally R500 maybe 6 times a year.
now there you go giving the bank 50k of a deposit for something thats only going to lose value.
Wow! I'm so overwhelmed by this information. Thank God I found this channel. LOL I will definitely recommend it to friends and family
Thank you Yvonne!
Great educational video
I think in your example, it maybe the case that the balloon option is better than deposit. However mostly new first time car buyers go balloon not because they have the deposit and will use wisely and invest to rip the benefits of compound interest and opportunity cost, but rather to buy cars that they can not afford then having to source or finance the balloon at the end which I think defeat the purpose and becomes even more expensive.
Always plugging us girlies with savvy investment information,Thank you❤
Thank you so much! 🤗 Glad it’s useful!
Interesting and good content, but what about the taxes you will pay on the invested funds?
This is helpful, thank you. I don't even know we could calculate our estimates. Would you recommend paying like R500 extra every month on the installment?
Yes, absolutely. The faster you pay down your car loan the less interest you’ll pay! 🙌🏾
Thank you.
You're so welcome!
Thanks for the video.
Suggestion: Instead of putting "Investor's View" in the title, you should also include "Decision Analysis". Add it to all the videos in the Decision Analysis series.
People will welcome anything that will help them make a financial decision.
Great suggestion! Thank you 🧡
Yvonne, just subscribed.... thank you for this....
Welcome 🤗!! Let me know if you have any finance questions you could use my opinion on. 🙌🏾
If I may make a point here; consider the interest rate on the car vs. the APY of the interest bearing account. If the interest bearing investment account yields lower than the interest rate on the car you are in a losing situation. Please correct me if I’m wrong. 🤓
You're quite right 👌🏽
Thanks madam, you simplified my pcocess
Wow thanks a lot mam.it does makes sense,I appreciate ❤❤
So glad to hear that! Thanks so much for watching 🤗 Look out for my next upload and let me know what you think 🙌🏾
Thanks Yvonne. Do you do personal/ one on one advice?
Good question! I’m setting up a series of workshops and a mentorship offering where I can share my opinions but for more comprehensive support I suggest seeking a registered Financial Advisor - your first consultation with them is always free from what I know. I recommend Sheila-Ann Robey or Tsungai Masendeke both exceptional and both on instagram.
I've learned more ❤
Hi Regarding investment what’s the best investment would you suggest for a 25 year old with a income of 6000
Hey! I would start by creating a budget, then if possible set up an emergency fund (your safety next) by opening a high yield savings account with your bank (usually easy through your app but you can ask your bank for options available to you) then automate for a payment every month for as much as you can afford based on what you see from your budget. I would save about 10% in the High Yield savings Account until you have as solid safety net 3-6months of your living expenses.
Then concurrently I would invest at least 10% or as much as I can of that 6k through a Tax Free Savings Account like the one I use by EasyEquities (or you can use Franc or any other platform really - but those two are simple to use), by buying ETFs like the Satrix 40 ETF(STX40), Sygnia Itrix S&P 500 ETF(SYG500), etc. (I would personally start with these or any ETF that tracks the S&P500 and Top 40).
Given I am not a financial advisor I think before you start implementing all this you should speak with a qualified financial advisor for clarity 🤗 Hope this helps!
@@YvonneFreely thank you so much yes I am looking into talking to financial advisors once I grow my income this year thank you again
Wanted to ask question.Bank asking for 10% deposit and I want car balloon payment can I put deposit or not. I have deposit money. I'm stuck
Respectfully so are you sure you didn't miss anything in those calculations?
Lets take a car finance of R200 000 and an interest of 12.75%
Scenario 1
Deposit R100 000
Balloon R0
Financed Amount R101 207.50 incl initiation fee
Total interest R49 079.57
Total Payment R150 287.07 (with this amount paid to the bank the car is mine)
Scenario 2 (Same car cost, same interest)
Deposit R70 000 (I don't pay R100k DEP, I take R30k and invest it)
Balloon R30 000 (15%)
Financed Amount R131 207.50
Total interest R72 029.57
At the end of 6 years I have paid R203 237.07 to the bank (the car is still not mine, I still need to pay R30 000 balloon to the bank and I pay it)
Total cost R233 237.07 (now the car is mine)
After 6 years, my R30k is mature from a compounding interest savings of 8%, I get R48 405
I subtract it from the money I paid to the bank and it gives me R184 432 and it's still R35000 more than scenario 1
I like this! Thanks for your question! I ran the numbers thoroughly but let me walk through your assumptions using my logic. The main difference in approach I am seeing is that I am considering the opportunity costs of paying a deposit to make my decision while most people would only look at the real costs. Anyway, let dive in, see below:
Scenario 1:
The total you would pay for the car including the deposit is R250 287.07 to own the car. However when you are making an important decision like this you would need to consider the real costs and opportunity costs of put R100K in a depreciating asset; so for me the real costs would be the deposit itself of a R100k and also the opportunity cost of putting that deposit.
The Numbers: If I am using the best rate from say Access Bank for R100k for 6 years at 10.45% which is better than the the average S&P500 return btw (source: www.ratecompare.co.za/deposit/best60month-100) compounded annually that would be R186.7k. So if I did not put the R100k in the car and invested instead I would get R86.7k in interest from my fixed deposit savings account so technically the car would cost me only R207 181.35 because I would get R86.7k back in returns (vs a sure total payment of R250 287.07 with no other returns to speak of) - as difference of R43k.
OR By putting a deposit my savings would be R43585.28 (i.e. R293872.35 (without deposit) - R250 287.07 (with deposit))
BUT if I didn't put a deposit and saved the money instead my position would be R292872.35 (the full cost I paid to own my car without a deposit) - R186 691 (the full benefit which is the compounded return on the R100k I chose not to put into my car to save on interest - I would still have my money and interest on it) = R107 181.35. Technically, if I didn't pay a deposit and saved the money instead I would only pay R107 181.35 for my car vs a CERTAIN cost of of R250 287.07 where I would not benefit from any compound returns at all.
Another way of looking at it is would be: Can my savings or investment returns give me more > than the total interest and instalment savings; and in this case the answer is yes because R86 691 is more than R43585.28 which is a R43.1k difference, so I would not sink my hard earned R100k as a deposit in a car that will probably have a low book value at the end of 6 years anyway. In your Scenario 1: after looking at the cost-benefit analysis I would not pay a deposit. What do you think?
Scenario 2:
For this one, by putting a deposit and balloon of 15% I would save R46642.64 (i.e. the R293 872.35 (without a deposit and balloon) - [R303 237.07 (including the 70k deposit and 30k balloon) - R56 007.36 (the compounded return of the R30k with Access Bank for 6 years at 10.45% (source: www.ratecompare.co.za/deposit/best60month-10)) which would equate to R247 229.71]
BUT again, if I didn't pay a deposit or balloon and invested the R100k I have instead the savings/investment returns would be more than the savings I would make from putting the 70k deposit and then a balloon payment after investing the 30k; so also in Scenario 2: I would not pay any deposit but put the R100k I have in a high yield savings account or in an investment that would yield a higher return. Do you think this is a good way to look at making your financial decision on your car especially whether you should pay a deposit or invest the money instead?
Let's just buy cash
I agree! Car finance is ridiculously expensive.
Pay what you want. We will all die and leave everything here on earth. Whether you paid balloon or put deposit it won’t matter.
Never pay a deposit guys. your throwing thousands to a bank for something you'll probably never own 😂.
the Best way to reduce your installment is to pay an additional amount randomly to the bank, and tell them to allocate the money to reduce the installment. if you don't twll them they'll allocate it to the interest/ballance.
also it will make a bigger difference that tens of thousands of a deposit or a risidual. in my experience. a simple R500 now and then (e.g 5 times a year).
Good tip!
@@YvonneFreely danko
I agree with you 👆🏽I managed to reduce my car instalment and interest rates, and paid it off quicker by paying extra amounts from time to time. No deposit and no balloon works better if you don’t have cash!