What’s the best way to buy a car – save up and pay cash, borrow from a bank, or lease hire? And is it better to sell and buy separately, or do a trade-in?
These are all valid and available options, with choice dictated on a case-by-case basis. Overall, there are five ways to get the things you want. Make them, steal them, barter them, pay cash, or get credit.
Those are life’s deals. There are no others. There is always a price to pay – the only option is in how and when you choose to pay it. This has been the case since Adam whittled woman out of a rib (make it), since club-wielding cave-man invented matrimony with violence (steal it), since JJ Hughes swapped Model T Fords for wheat crops in Uasin Gishu (barter), since the clink of the first cowrie shell in Gedi (cash), and since Dr Faust went on tick with Old Nick (credit).
Lawyers, accountants and salesmen have invented hundreds of different words to describe each of these processes in an attempt to bewilder, beguile and finally bedevil and behoof the benighted public to bethink them beneficent and by these parts to ensure the party of the second part has to pay the party of the first part such a huge part of his last part he’s got nothing left to part or party with.
“Make” embraces grow, manufacture, assemble, fabricate, construct…
“Steal” includes rob, burgle, thieve, defraud, embezzle, hijack, half-hinch, and some types of bribe/gift.
“Barter”, meaning swap, has been given fancy titles like trade-exchange; the word ‘inducement’ is in the vicinity.
And even plain-simple cash has notes and coins and cheques and debit cards and direct debits and standing orders and whatnot.
But the greatest creative skills have been reserved for different ways to describe credit.
The business of usury – so famously championed by Shakespeare’s trader of east Mediterranean extraction in an Italian town with wet streets – has been euphemised, bastardised, legalised and otherwise disguised by all manner of pecuniary poetry.
Colleagues borrow and give loans. There is I owe you [IOUs], and small things can be got “on tick” or on account. Bigger items require mortgages, lease hire, hire purchase, otherwise known as the “never-never” (leaving us unsure of whether the pain never starts or the paying never stops). The instruments of credit include pawn shops, overdrafts, credit cards, commercial papers, promisory notes, advances, drawing rights, loan sharks, refer-to-drawer scribbles, failure to get a second signature, the accountant is out at the moment, could you please send me another copy of the invoice, our computer crashed and we’re doing everything by hand, we’re waiting for a tax refund…
Call it what you like. Credit is credit. A get-now-pay-later system. And pay later must, by definition, mean pay more to finance the cost and the profit of a credit facility. It is that extra cost that distinguishes legitimate credit from theft or charity.
There is nothing new about the credit idea, nor the over-riding principle that it increases the price. Kenya’s motorists have been well aware of that for some time (approximately one century). However, they have been most familiar with the idea of buying a car from one person and borrowing the money to pay for it from somebody else.
That keeps things relatively simple. One deal on the price of the car. A separate deal on the price of the money. All clear-cut and clean from everybody’s point of view.
However, as almost everybody depends on credit to buy a car, motor companies could become dependent on finance companies to secure their sales levels and margins.
So, globally, the trend is for motor companies to offer their own finance schemes (they use their own resources or their huge corporate creditworthiness to borrow the money from financiers, and pass that on to their customers, at cost plus.)
So the motorist gets the car, and the credit from the same seller.
And that greatly increases the number of different ways credit can be packaged and promoted. Hot on the heels of come-ons applied to the car – like real discounts, or hidden discounts through inflated trade-ins, cashback, or such nonsense as “free” service – come gimmicks applied to the finance like no-deposit and low-deposit, zero interest periods, and pay-back deferrals; different names and games that affect tax liability, and so on.
In some ways, the co-ordination of all these elements by just one company maximises the potential for a special deal; but it also makes evaluation of that deal much more difficult because it is almost impossible to distinguish which part of what you are paying is covering which part of what you are getting, and therefore to calculate what’s a bargain and what’s a rip-off.
And the more bits and pieces that are rolled into the package, the better the bargain or the bigger the rip-off can be. The most all-inclusive motor package could, in theory, be the cheapest form of motoring. In practice, the most all-inclusive system is called car hire, and it is usually the most expensive form of motoring.
There are dozens of “new” schemes on the Kenyan market. None of them reinvent the credit wheel – but they all spin it in different ways. While the options proliferate and evolve, I offer no judgment, but here are a few principles to be going on with.
One: You are out there to buy a car, not a fancy finance scheme or bonus extras. So above all, select the vehicle first, on the vehicle’s merits. Your usage, your needs and values, your preferences.
Two: When you have chosen the right vehicle for your purposes, only then look at your different options for paying for it. Salesmen are often poor advisors – competitors make better research assistants.
Three: Whatever the sales pitch calls it, if you don’t pay in full and up-front, you are on a credit scheme. You are therefore buying not only the car, but the money with which to pay for it. Evaluate both purchases, separately, with equal care.
Four: There are some very good deals out there. But any deal that looks too good to be true, probably is. Caveat Emptor (Let the Buyer Beware) is not just a legal principle. It is good advice.
Finally, if it has anything to do with motoring (or any commercial human being, for that matter) mistrust the word “Free”. What the word actually means (‘you do not have to pay anything’) and what marketers mean when they use it (‘the cost has already been added to something you do have to pay for’) are not the same thing.