Buying a car is a huge financial investment so people need to think carefully about their decision, especially when considering the high cost of living. Picture: Freepik
Due to ongoing electricity issues, a weaker rand and increasing food costs, consumers are struggling to deal with the high cost of living and need to find more money each month to pay off the interest on their bonds, car loans, credit cards and other debt.
Ernest North, co-founder of digital insurance platform, Naked Insurance said that against this backdrop, one of the expenses that consumers are starting to examine closely is the cost of owning a car. For most people, the cost of their car is their second biggest monthly expense after housing.
“Costs of car ownership have soared over the past two years, with higher interest rates, rising maintenance and repair costs, fuel price increases, and higher insurance costs,” North said.
Buying your first car or replacing the car that you already own are decisions that you need to think through carefully.
It is important that you ask yourself these questions before you decide buy a new car:
– Is this really the best way for me to spend my money?
– And how will buying a new car affect my monthly expenses?
– Can I afford the costs?
North said: “To answer the first question, you can consider how spending more on a car each month will affect your other financial goals such as saving for a deposit on a home.”
You need think about the sacrifices that you might need to make to afford the car like spending less on holidays and entertainment.
Here is a look the other financial elements that you need to consider before you make a decision to buy a car.
The single biggest cost of car ownership is the purchase price which is dependent on factors such as:
– Which brand, model and vehicle class you want to get. You could pay a lot more for a luxury brand or a 4X4 compared to a basic sedan from a value-for-money brand.
– Whether you buy new or second-hand. North said: “You will pay more for a new car than a second-hand car, and it will start losing value as soon as you drive off the dealer’s floor.”
– Which extras you want to get. Adding extra features can inflate the cost of your car.
According to North, there has been a shortage of second-hand cars, which means that selling prices of used cars are rising faster than that of new cars.
Recent tracking numbers from TransUnion show that new vehicle price increases are below inflation, although this is forecast to increase in the upcoming months.
North said that if you have cash in the bank, you might be able to pay for it upfront, but not a lot of people can afford to pay cash for a car, so they will most likely pay for their car through a mixture of a cash deposit and financing from a lender.
“Your monthly repayment will be determined by the interest rate you pay, as well as the number of months over which you repay the loan,” North said.
People can work out the approximate cost of their petrol bill by taking a look at their fuel consumption and working out the number of kilometres they travel each month.
“If your car’s fuel consumption is just under 20 kilometres per litre and petrol costs close to R23 a litre, it will cost you around R1,150 to travel 1,000 kilometres,” North said.
People need to keep in mind that the petrol price is volatile and it fluctuates along with the rand and the oil price.
If you are financing you car through a loan, the lender will insist that you get comprehensive car insurance. However, insurance is essential to protect yourself from loss and liability, even if you are not getting a loan.
North said that it is crucial that people get a few quotes to ensure they are getting the best possible price. Insurers determine your premium by evaluating how much of a risk you are, so prices vary between different drivers.
According to North, one of the benefits of buying a new or even a certified used car from an authorised dealer is that it will usually come with a service and maintenance plan that will cover most of the routine things done in your service.
However, you will still need to budget for expendables like brake pads, windscreen wipers and tyres.
If you don’t have a warranty and service plan, you should also plan on spending services and the unforeseen breakdown of major parts. The cost of a service will be influenced by the age of the vehicle and how much you drive.
IOL Business