Buying a car in South Africa can feel a bit like playing a game of 30 Seconds… You’ve got to make decisions fast, and if you’re not careful, it’s easy to go off-track. Between deciding on a make and model, navigating finance options, and figuring out how much you can actually afford, it’s no wonder so many people end up spending more than they should.
Fortunately, we’ve got a straightforward guide to help you figure out how much you should really spend on a car without ending up on a baked beans budget. Not that there’s anything wrong with baked beans. Just not every night, you know?
Get your budgeting bestie on board
What you’re aiming to do is keep your overall debt manageable. What this means is that the total of all your monthly debt payments, including car, credit cards, and home loans, should generally not exceed 36% of your gross income. Doing this will help you create a car budget that will help you avoid debt stress.
Wondering how to create a workable car budget? We’re not married to this option, but the 20/4/10 rule does seem to be pretty straightforward. This rule helps you buy a car that won’t have you surviving on 2 minute noodles by month-end.
Here’s how it works:
- 20% down payment: Aim to put down at least 20% of the car’s price upfront.
- 4-year repayment term: Keep your financing period to 4 years or less to avoid paying more in interest than the car is worth.
- 10% of monthly income: Your total car expenses, including repayments, insurance, and fuel, shouldn’t exceed 10% of your gross monthly income.
Calculate the true cost of ownership
In keeping with the idea that avoiding debt is big yes, you should keep in mind the fact that the price tag on the car isn’t the end of the story.
You’ll also need to budget for car insurance, which is compulsory if your car is financed (we’d say it’s non-negotiable in South Africa unless you enjoy living dangerously). Don’t forget about fuel, and with petrol prices doing the Macarena every month, it’s wise to overestimate here. And then there’s the maintenance and repairs to factor in, as well as anything you spend on tolls and parking. Because the universe believes you don’t have enough expenses already.
Here’s an example of how these monthly costs can add up:
- Monthly repayment: R5,500
- The king’s super cheap car insurance: R500
- Fuel: R2,340
- Maintenance: R500
This brings your total to R8,840 and if your car budget doesn’t fit these costs comfortably, it might be time to scale back.
The great debate: New or used?
When it comes to buying a new car, you’re obviously going to pay a much higher price. For that price, you get reliability, a warranty, and that intoxicating new-car smell. But with the depreciation factor, your new investment will lose up to 20% of its value the moment you drive it off the lot. If you opt for a used car, you could pay a much lower price for a car that gives you so much more. It will also come with a slower depreciation in value.
That said, there will most likely be higher maintenance costs, and the risk of inheriting someone else’s bad decisions. These expenses are often outshone by the lower price, so if you’re going the used route, aim for a car that’s 2–3 years old with low mileage and a full service history.
This way, you dodge the worst of the depreciation and still get a fairly reliable ride.
Beware of balloon payments
Balloon payments are like that ex you keep texting. They seem convenient now because it reduces your monthly installments, but have the power to cause headaches later when you have to pay a fairly largeish sum at the end of your term. Unless you’re certain you can refinance or save up for that balloon, it’s safer to avoid it altogether.
The showdown: Finance vs. paying cash
If you’ve managed to save enough, cash is king. No interest, no monthly payments, and the satisfying knowledge that the car is 100% yours. That said, not many of us can hit up the ATM to buy a car.
If cash isn’t an option, aim for a finance plan with a low interest rate and no balloon payment. Shop around and get pre-approved to avoid dealership pressure tactics. A shorter repayment term saves on interest, even if the monthly payments are higher.
Keeping your wheels and wallet happy
Choosing a car is a lot like dating. You’ve got to think with both your head and your heart. As much as those heated seats and premium sound system might tempt you, it’s important to stay realistic about what you can actually afford.
And of course, once you’ve found the perfect car, don’t forget to protect it. We’ve got a range of car insurance policies to choose from, so that you can be sure-sure about hitting the road in your new wheels.
If you want us to be there for you, WhatsApp us on 0860 50 50 50 or click here for a commitment-free quote.