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<b>WHAT YOU SHOULD KNOW:</b> Buying a car for the first time can be scary if you don't know all the facts. Make sure you know what your budget is first. <i>Image: Shutterstock</i>
Buying your first car can be daunting your first car. WesBank offers consumers advice on how best to work out what you can afford, and how your budget needs to be allocated.
WesBank says the first thing to do is work out what you can afford, based on your income and expenditure. To do this, take your total net salary - in other words your take-home pay - and then subtract all your monthly expenses like rent, groceries, utilities, credit card payments and any other regular expenses.
If in doubt of the actual amount of an expense than might fluctuate from month to month, such as a credit card bill, always estimate high – don’t risk estimating low, and thinking you have more money than you actually do, as this could lead to trouble for you down the road when trying to keep up with your various payments. Whatever amount you have left after you have accounted for your monthly expenses is your budget.
AFFORDABILITY BUDGET
It is important to remember that whatever your current monthly costs associated with transport, for example either taxi, train or bus fare, you can remove those costs from your monthly expenses and add those amounts back into your affordability budget, as those expenses will fall away when you buy your car.
If you already own a car, says WesBank, and you are planning to keep your current car and buy a new one, then those transport costs of course remain in your current budget and reduce your affordability. However, if you intend selling or trading in your current car then not only do the repayments on that current car fall away from the expenses part of your budget, but so does the insurance on that car. That means these amounts can be added back into your affordability basket.
If you are selling or trading in your current car this also helps with affordability, as this amount can be used towards a deposit on your car, which means that applying for financing is easier, and this also helps reduce the amount of the loan, making the loan’s monthly repayments more affordable as well.
OTHER COSTS INVOLVED
Many first time car buyers make the mistake of assuming that the only cost associated with financing a car is the car repayment itself, so when they work out their budget and say they have R5000 to spend they assume they can rush out and buy a car with a repayment of R5000p/m.
WesBank said: “This can be a fatal mistake as they’ll end up getting themselves in trouble financially because they have not accounted for all the other costs. It is vital that people understand that buying a car is not just about the monthly repayment on the car itself.
“Some new cars don't necessarily have service plans, and used cars might have had their service plans expire. It’s very important to have at least an annual service, even if you don’t do the required 15 000km between these services, so this is an annual amount one has to budget for. If parts need to be replaced this can run into the thousands which is a large sum to pay all at once.”
However, WesBank says there is an option that car buyers could consider, and that is adding an aftermarket service plan onto your car purchase as this means you don't have to worry about high service bills in the future and is just an additional monthly amount added to your contract.
BUDGET FOR TYRES
It’s a good idea to find out what new tyres for the car you’re thinking about buying will cost as part of the car-buying research, says WesBank. Tyres need to be changed roughly every 32 000km - as when they are too worn they become a hazard not only for the driver, but for other road users as well. Driving style and speed obviously influence wear and tear on tyres, so if you’re a careful driver you can avoid having this cost too often.
Depending on where a driver is based, e-tolls are a consideration as well – and don’t forget to account for annual price increases too.
INSURANCE A MUST
Insurance is another vital cost. It is often a grudge purchase, but remember, you don’t want to be stuck paying off a car that you have written off or for some reason is no longer drivable. You could also find yourself in legal and financial trouble without third party insurance if you are a cause of an accident.
And, of course, you have to budget for fuel as well. Given the high cost of fuel these days these monthly amounts spent on fuel can actually equal the amount you pay for the car itself, depending on how much you drive.
Whatever your budget works out to be you should allow for half of it to be spent on the monthly repayment, and then put aside the other half to cover these additional expenses, adds WesBank. In other words if we use the example of the R5000 budget again, it essentially means that a person could spend R2500 on the car repayment and needs to use the balance on things like fuel, maintenance and insurance.
WesBank says the first thing to do is work out what you can afford, based on your income and expenditure. To do this, take your total net salary - in other words your take-home pay - and then subtract all your monthly expenses like rent, groceries, utilities, credit card payments and any other regular expenses.
If in doubt of the actual amount of an expense than might fluctuate from month to month, such as a credit card bill, always estimate high – don’t risk estimating low, and thinking you have more money than you actually do, as this could lead to trouble for you down the road when trying to keep up with your various payments. Whatever amount you have left after you have accounted for your monthly expenses is your budget.
AFFORDABILITY BUDGET
It is important to remember that whatever your current monthly costs associated with transport, for example either taxi, train or bus fare, you can remove those costs from your monthly expenses and add those amounts back into your affordability budget, as those expenses will fall away when you buy your car.
If you already own a car, says WesBank, and you are planning to keep your current car and buy a new one, then those transport costs of course remain in your current budget and reduce your affordability. However, if you intend selling or trading in your current car then not only do the repayments on that current car fall away from the expenses part of your budget, but so does the insurance on that car. That means these amounts can be added back into your affordability basket.
If you are selling or trading in your current car this also helps with affordability, as this amount can be used towards a deposit on your car, which means that applying for financing is easier, and this also helps reduce the amount of the loan, making the loan’s monthly repayments more affordable as well.
OTHER COSTS INVOLVED
Many first time car buyers make the mistake of assuming that the only cost associated with financing a car is the car repayment itself, so when they work out their budget and say they have R5000 to spend they assume they can rush out and buy a car with a repayment of R5000p/m.
WesBank said: “This can be a fatal mistake as they’ll end up getting themselves in trouble financially because they have not accounted for all the other costs. It is vital that people understand that buying a car is not just about the monthly repayment on the car itself.
“Some new cars don't necessarily have service plans, and used cars might have had their service plans expire. It’s very important to have at least an annual service, even if you don’t do the required 15 000km between these services, so this is an annual amount one has to budget for. If parts need to be replaced this can run into the thousands which is a large sum to pay all at once.”
However, WesBank says there is an option that car buyers could consider, and that is adding an aftermarket service plan onto your car purchase as this means you don't have to worry about high service bills in the future and is just an additional monthly amount added to your contract.
BUDGET FOR TYRES
It’s a good idea to find out what new tyres for the car you’re thinking about buying will cost as part of the car-buying research, says WesBank. Tyres need to be changed roughly every 32 000km - as when they are too worn they become a hazard not only for the driver, but for other road users as well. Driving style and speed obviously influence wear and tear on tyres, so if you’re a careful driver you can avoid having this cost too often.
Depending on where a driver is based, e-tolls are a consideration as well – and don’t forget to account for annual price increases too.
INSURANCE A MUST
Insurance is another vital cost. It is often a grudge purchase, but remember, you don’t want to be stuck paying off a car that you have written off or for some reason is no longer drivable. You could also find yourself in legal and financial trouble without third party insurance if you are a cause of an accident.
And, of course, you have to budget for fuel as well. Given the high cost of fuel these days these monthly amounts spent on fuel can actually equal the amount you pay for the car itself, depending on how much you drive.
Whatever your budget works out to be you should allow for half of it to be spent on the monthly repayment, and then put aside the other half to cover these additional expenses, adds WesBank. In other words if we use the example of the R5000 budget again, it essentially means that a person could spend R2500 on the car repayment and needs to use the balance on things like fuel, maintenance and insurance.
