How Much Should You Spend on Your Car?

How Much Should You Spend on Your Car?


Buying a car is exciting. Once you’ve made up your mind to get some new wheels, you suddenly take an interest in cars you hardly noticed before. You wonder what they’re like to drive, what colour looks best, do I need mags or a decent sound system?


Before you go test driving a fleet of cars, you may want to work out just how much money you can afford to spend on a car monthly. This will help you narrow down your options and stay within your budget.


The ‘Little’ Extras to Consider


It’s easy to look only at the monthly repayments for a car and decide you can handle the costs. But there are other expenses that can quickly add up. These include the cost of:


  • Fuel consumption - Even though the fuel price fluctuates each month, it’s worth estimating what your fuel costs are going to be – particularly if you’re upgrading to a different class of vehicle.

  • Servicing and Maintenance - Servicing your car, especially a car which is out of its warranty period, can be costly. While there are many reliable and reputable operators on the market, make sure you get comparable quotes to ensure that you’re getting a great deal at the same time. Often servicing through the dealership can end up being pricey.

  • Vehicle licence renewal fees - From 1 February 2018, an amount of R72 was added to the renewal base fees for all motor vehicle licenses as a transaction fee to be paid to the RTMC (Road Traffic Management Corporation). The fee has been increased by R30, up from R42 charged previously.

  • Car insurance – It’s easy to forget about your insurance. Get multiple quotes on your car insurance and make sure you’re getting the best deal for you.


How Much Is Too Much?


George Simitopoulos, CEO of Carfin, says that using 25% of your salary is a good benchmark when calculating how much you can safely spend on car repayments. When you include those added extras, though, you’re looking at closer to 30% of your salary.


A Deposit Can Help


By putting down a deposit, you could either pay off your car sooner, which means less money spent overall, or you could lower your monthly repayments to make it more affordable.


Beware of Balloon Payments


If your heart is set on a car that’s out of your price range, a balloon payment might seem attractive. This is when you agree to pay a lump sum at the end of your vehicle finance term. This makes the monthly repayments lower (which is why it’s so appealing), but when you reach the end of the term, you may not have that lump sum of cash available.


If you can’t afford the balloon payment, your options are limited. You can either approach your finance house and ask them to restructure the vehicle finance to cover the balloon payment, in which case you’ll probably be paying off your car for a few more years. Or you can trade it in for a new car. If you do this, you may have to include a balloon payment to finance this new car, too, due to monthly affordability, and that starts the cycle over.


The best way to make sure you can afford a car is to create a budget and factor in all of these expenses. If you can’t afford that dream car, you might have to get something a little more affordable this time.


Prices quoted are correct at the time of publishing this article. The information in this article is provided for informational purposes only and should not be construed as financial, legal or medical advice.

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