By Ernest North

Buying a car is exciting, whether it’s a brand new model or a preowned beauty you fell in love with after a test drive. But, before you sign the papers and take possession of your new wheels, it’s wise to think carefully about what the new car will mean for your personal finances. Even the most modest vehicle comes with a range of ongoing costs that will be with you far longer than that wonderful new car smell.

The two questions you should ask yourself before committing to a new car are: Can I afford the monthly costs of the car I want to buy? And, is this really the wisest way for me to spend my money?

The first question considers your cashflow - do you have enough to meet all the monthly costs? The second question is about your long-term financial position and comparing this car to your other options, such as using Uber, cycling or public transport.

Here’s how to work out if you can afford a car

Step 1: Evaluate your needs and the cars you might buy

The first step is to decide which car to buy. Do you want a 4X4 for your holidays in the bush? A hatchback for school runs and shopping? A luxury sedan because you do long commutes and lots of work travel? From here, you can browse online marketplaces and test-drive cars at dealers to find the right one for you. Your ultimate choice might be the 2020 VW Polo TSI Comfortline (automatic). At the time of writing, this Polo was going for roughly R300,000.

Step 2: Find out what the monthly car repayment will be

You can skip this step if you’re paying cash. Most people, however, will need financing to buy a car at this price. The monthly repayment will be determined by the interest rate you pay as well as the number of months over which you repay the loan. A R300,000 car repaid over five years will cost you around R6,500 a month at the current interest rate (depending on the size of any deposit you’re able to put down up front). The longer the loan term, the more interest you will end up paying. See this calculator by AutoTrader for more insight.

Step 3: Estimate fuel costs

You can work out your approximate petrol bill by considering how many kilometres you drive each month. Then, look for information about your vehicle’s fuel consumption—how many kilometres can you get on a litre of fuel? If your car’s fuel consumption is just under 20 kilometres per litre and petrol costs close to R20 a litre, it will cost you around R1,000 a month to travel 1,000 kilometres.

Step 4: Get insurance quotes

If you’re getting a loan to buy your car, the lender will insist that you get comprehensive car insurance. Even if you are not getting a loan, insurance is essential to protect yourself from loss and liability. Get a few quotes to ensure you’re getting the best possible price. For now, let’s estimate your insurance premium on the Polo is R750 per month.

Step 5: Budget for repairs

One of the benefits of buying new is that it will usually include a maintenance plan that will cover most of the routine things done in your service. However, you’ll still need to budget for expendables like brake pads, windscreen wipers and tyres. This usually averages roughly 2% of the car’s value each year, or about R6,000 for your R300,000 car.

You should also allocate some money for nastier surprises like a snapped cambelt or a new clutch—perhaps 5% of its value per year, or R15,000 for our Polo. If you don’t have a service plan, you can plan on spending an extra R5,000-R10,000 per service. How much it will cost you will be influenced by the age of the vehicle and how much you drive.

The total cost

Adding up all of these costs you would need a car budget of about R10,000 a month to own and drive a R300,000 car.

So, you can afford the car—but should you buy it?

Over five years, these costs will stack up to R600,000.

We estimate that once your car is paid off in five years’ time, it will be worth around R165,000. That means that the total amount you paid for your full cost of owning the car will be R435,000 — or R238 per day.

Most of us need to get around, so the next question is whether it’s better to Uber or buy a car. Depending on your lifestyle and where you live, you also have choices like cycling or using the Gautrain or MyCiTi bus. Your other options include buying a slightly less expensive vehicle, especially if that means you can pay cash for your car. You can then put the monthly difference in retirement funding or a savings account.

It’s also worth thinking carefully about the costs and how much you value the flexibility and freedom of car ownership before deciding whether to get a new car or do without. Whatever you decide, buying a car is a major commitment, and only you will know whether it’s the optimal choice for you from a financial and lifestyle perspective.

Ernest North is the co-founder of Naked Insurance

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