It's a simple question... but the answer's pretty complicated. Here's a look at your options.
What car can the average South African adult afford on an average South African salary? It sounds like a fairly (here's that word again) average question, yet as soon as you start unpacking it, things get complicated quickly.
First of all, what exactly is an "average" salary? Given that 32.6% of the national workforce is unemployed, you could argue that the national average is close to zero. The national minimum wage is R3 500, yet in 2019 recruitment platform Giraffe found that 29% of working people were earning less than that. They pegged the national average salary at R6 400 a month.
More recently, Statistics SA's latest Quarterly Employment Statistics indicated that the average South African salary in February 2021 was a significantly higher R23 122. While there are plenty of people who would love to be earning that much, that is nevertheless what the numbers say... And it means that (statistically speaking) once SARS has had a look, the average earner is left with around R19 864 per month.
Still with us? Good. Now let's look at what you can buy with that average salary.
Banks in South Africa generally recommend that you don't spend more than 30% of your annual gross salary on a car, and that your monthly costs should be no more than 10%. Other recommendations put the benchmark at 25%. That's good advice, especially in this tough economy. So let's be responsible, and allocate no more than 10% of that average salary (that's R1 986) towards a vehicle purchase.
That figure would qualify you for a loan amount of around R94 800, over a five-year term. In the South African new vehicle market, that would buy you...
Not very much.
South Africa's cheapest new passenger car is the Suzuki S-Presso, starting from R149 900. It's cute, it's quirky, and it's also R55 000 out of the price range for this exercise. So unless you've been putting some savings away or are willing to string out your purchase over a longer period – and pay much more interest – a new, out-of-the-box car is going to be beyond your reach.
Allocating 10% of your monthly after-tax income may not seem like a lot, but the reality is that the true cost of owning a car - including the cost of tyres and maintenance, for example - will add up quicker than you think.And while you can save on car insurance by using our handy car insurance quote comparison tool, there's not much you can do about the price of petrol or diesel. Bottom line? Even the most affordable new cars can end up being more expensive than you'd expect in the long run.
If buying new is out of the equation, what other options do you have?
Consider buying used. You can definitely pick a second-hand vehicle up for R94 800, but would it be good value and reliable? Banks tend to be less willing to finance purchases of cars older than five years, so you may still have to raid your piggy bank to find a solution.
If you're looking at a decent, affordable car that's no more than five years old, that means playing in relatively high-mileage territory... It's likely, then, that the warranty and any kind of service plan would have expired, so you'll need to factor those costs in as out-of-pocket expenses.
You should be able to get a reliable and solid 2015 Ford Figo 1.4TDCi with just over 100 000km on the clock for around R94 000. Thereabouts, too, is the sound Renault Sandero 900T Dynamique – north of 100 000 km – at about R90 000.
You can take your chances with much lower priced cars, but you would then need to be honest with yourself about why they're for sale. Often it's because the car is either heading towards – or in excess of – 200 000km, or it's no longer supported by dealers. Or it's just rubbish to drive. Either way, you'll need to look out for the usual used car warning signs.
Now that you've found your cheap, cheerful, affordable chariot, you'll need to look at vehicle financing options.
Balloon payments are, at first glance, the most attractive, because they can drop your monthly instalment by deferring a percentage of the purchase price until later. For example, you buy a car worth R200 000, with a 40% balloon or residual payment. Instead of paying R4 152 per month, you pay R3 091. A win! Except, at the end of that 60-month period, you'll still owe R80 000 on a car which is now five years old, out of warranty and with no service plan. You could pay that amount off if you're a diligent saver – or you'll end up refinancing it again and adding to the R53 204 you've already paid in interest.
If you have a home loan and you can restructure it, you could use that to incorporate the cost of buying a car. The interest rate on your home loan will be lower than one you'd qualify for on a vehicle loan. You have to keep an eye on the term of the loan, though, and aim to pay the vehicle off in under 48 months to avoid incurring massive additional interest costs.
If the bank won't help you out for whatever reason (poor credit record, the vehicle you're looking at is older than five years, etc), you may need to look at a personal loan. Because it's viewed as an unsecured loan, the interest rate you qualify for will often be exponentially higher than that of a vehicle loan – but on the other hand, you'll own the vehicle outright, right away.
If you can afford it, however, your best option may be a straight-forward instalment sale, where you pay a deposit upfront, followed by monthly payments over a predetermined period.
Take a look at Hippo's Car Finance comparison tool to get a handle on what you can afford – and the best way to structure a deal for your circumstances.
This article is for informational purposes only and should not be construed as financial, legal or medical advice.