It’s so easy to imagine all the bells and whistles, the race red colour, and the cruise control feature when you’re salivating over the purchase of your new wheels.
Then why is it so hard to focus our energy on the budgeting part? Probably due to how boring the financial part feels when you’re doing something as thrilling as buying a hot, new ride!
The trick is to consider the pricing and financing with as passionate an eye as the one that spotted that car in the dealership lot in the first place. Most people are so excited at the thought of driving away in their new car, that they merely scan over the price tag listed in bold on the car without considering the total repayable through a finance deal. It’s quite silly when you realize that the price tag is just one cost of the total package when financing a vehicle through the bank.
A car loan is not a cheap loan, however, it is tailored to suit the needs of a South African buying a car. The trick is to be fully aware of all the costs involved before you head over to the dealer and start your negotiation.
Right, so you’re ready to jump into the market for a new car, and you’re ready to take whatever advice we can give! Well, starting with your budget, there are 5 crucial costs you need to take into consideration to ensure that you aren’t stepping into a financial commitment you can’t afford.
The actual monthly repayment
While this is the major cost of the finance deal, it’s not the only one. But it does cover the bulk of the expense. Every month you will pay an instalment to the bank, which is made up of a portion towards the capital and a portion that is interest. During the initial period, you’ll find that you’re mostly paying interest and not much towards the capital at all. With that said, each and every month, the total figure comes down as per the agreement in budgeted instalment amounts. These repayments will take place over a predetermined term set out between the bank and the buyer.
Where you can, always put down as large a deposit as possible, because it means that you’ll be paying off interest on a smaller amount, which essentially saves you money and leaves you safe from a scenario where you might end up paying more for the car than what it’s worth once you’ve paid all the interest.
Don’t forget to consider car insurance
We do a quick calculation on the vehicle repayment against our disposable income and figure we have enough to cover it but don’t think of insurance. The banks also don’t cater to an insurance cost when approving your vehicle finance either, so it’s left for you to calculate and ensure you can afford it. All the banks require is that the car is insured as part of the deal.
Insurance is non-negotiable. It doesn’t’ matter whether you believe you’re a new age Steve McQueen or not, it’s down to the other drivers and that little word “accident”. Anyone can find themselves in an accident and if you’re not covered, you could end up paying a seriously hefty cost towards the fixing of your car. Most of which, regular households cannot afford to do. The payout from insurance on a write off the vehicle is always worth the insurance premium. From insurer to insurer it’s different, but you can budget between R800 to R1000 extra as an additional cost to consider when financing your new vehicle.
Your annual car service
Each car is different, but generally, the mileage service is at around 15000km or every 12 months, whichever comes first. Services can be major or minor and it’s the minor ones that aren’t too heavy on the wallet, but the major ones can be. If you aren’t comfortable or in a position to fork out the entire payment at the time of the service and prefer to put away a little bit monthly so it’s less of a blow in one go, then factor this saving in too! If you don’t, you may have to take out a short-term loan to cover the expense.
Never mind the basic service cost, you should also factor in the price of unforeseen repairs that your service agent might inform you of when your car goes in. It could be brake pads or windscreen wipers, you never know, but the point is that parts on a car wear away and every so often you’re going to have to replace them. What are the costs? Well, consider anything from R1500 to R7000 on the average economical car, depending on what that might be.
Tyre changes will roll around
Here’s a little secret – tyres don’t last forever. Wouldn’t it be great if they did though? In theory, your tyres are expected to last for around 2 years if you’re lucky. This also depends on where you drive, how you drive and the tyre itself. You might not have to replace all in one go, but you don’t want uneven wear on tyres, so it’s generally recommended to at the very least, replace two at a time.
At a minimum cost of R800 per tyre, you can see how it’s a valid cost to consider when financing your new car. It’s wise then to ensure that you properly budget for your tyre replacements and to make sure you have a good spare tyre in the back.
The dreaded one – FUEL!
This is the most frequent cost you’ll have to encounter for your new financed vehicle, so make sure that it’s economical and suits your budget according to how much and how far you drive. Since fuel prices keep rising, work out an average amount per tank and how many tanks on average you use per month and then you’ll have an idea of how much to budget for getting around. So, you see, there are plenty of costs to consider and budget for, so budget wisely fellow drivers!