Buying a Car as an Investment: What You Need to Know

Whether you opt for a brand new car or buy a used car in South Africa, you’ll be making a significant outlay of cash. Cars aren’t cheap. Unfortunately, this doesn’t mean that buying a car qualifies as a good investment.

Why buying a car usually isn’t an investment

Any financial advisor will tell you that a car is typically a liability rather than an investment.

This is because most new vehicles sold in South Africa lose between 10% and 40% of their value over the first year of ownership. After five years, sell your car and you can expect to lose between 45% and 75% of its original sale value.

You can check your current car book value instantly online. It’s vital to know this before you try to sell your car.

Another reason cars don’t typically make good investments is the maintenance costs. As cars get older, maintenance costs go up. Once they pass a certain age, this can snowball, with more parts requiring replacement at the same time and these parts becoming harder to find and more expensive.

Exceptions to the rule: cars that make sound investments

While you’ll almost always lose money on a car in the short to medium term, some cars do appreciate in value over time. Give them decades, and they can become valuable assets. Here are some factors to consider when considering buying a car as an investment.

1. Cars that are already collectible can appreciate in value

If you buy a car that’s already collectible from a classic car club, the picture changes. If properly maintained, a classic car can actually gain value as more time passes.

Many antique and vintage cars have already appreciated significantly in value over the decades.

Investing in one of these vehicles is a well-recognised strategy for buying a car as an investment. A loan against a car in this category is also straightforward to secure. However, it helps if you have a real passion for classic cars. You’ll need the time, funds and ability to keep your vehicle in show condition. Then when you sell your car, you can expect a healthy return.

2. Consider investing in a modern classic

You needn’t wait until a Porsche Spyder or Model T Ford becomes available for sale to invest in a classic car.

Modern classics are cars between 15 and 29 years old that have achieved collectible status. Some examples of cars from the 1990s that have appreciated in value are the Opel 200 GSI-16V "Superboss" and the BMW 325iS.

3. Restore a collectible vehicle

If you’re an accomplished mechanic, there’s no need to pay for a collectible vehicle at its full value. Instead, aim to identify vehicles with collectible status and purchase one that requires basic restoration.

However, don’t take this route unless you have the necessary time and skills, and are happy to make restoring your car an on-going hobby (or obsession!). Otherwise, the cost of restoring a classic car could quickly exceed any return you can get for it, and buying a collectible car in good condition is a better bet.

4. Hold on to your old car

If you have an older vehicle that is dent free, rust free and in running order, it might be worth hanging onto it rather than selling it cheaply in the second-hand market. Once your car is over the age of 15, it will automatically qualify as a modern classic vehicle.

Depending on the make, model and condition of the car, it may become collectible. In this case, it could gradually begin to recover some of the value that it has lost through deprecation.

5. Buy with an eye on investment status

There’s no guarantee that any car currently on the new car market will become collectible. However, some factors boost a vehicle’s chances of becoming collectible over the long term.

For example, limited edition vehicles may make good investments. In particular, limited-release, high-performance versions of standard consumer models have the best chance of gaining value over time.

Sports cars by luxury brands like Lotus, Jaguar, Morgan and Ferrari also have a better chance of becoming collectible over the long term. They also depreciate more slowly in the short to medium term, and it’s easy to get a loan against a car in this category.

6. Don’t buy classic vehicles for daily use

Unless you’re buying a newer car with potential future value as a collectible, it’s a good idea to keep your collectible vehicle off public roads.

The cost of repairing accident damage to a classic vehicle is likely to be extremely steep. Also, classic cars typically lack safety features that are mandatory in modern cars.

Adding wear and tear to a classic car could also decrease its car book value.

7. Classic cars are assets you can use to secure loans

If you buy a collectible vehicle, you can sell your car to realise a return on your investment. In addition, you can opt to use the car as collateral for a loan, to generate short-term cash flow. That means you can use the car to get funds, without having to sell it.

Companies like Pawn My Car specialise in offering loans for cars, in much the same way as other lenders offer loans against high-value assets like property, collectible art or valuable jewellery.

Wondering what your existing car is worth, or looking into buying a car as an investment? Use our car book value tool to get an instant report on car book value.

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