Next to buying a home, a car is likely to be the second-most expensive purchase you’ll spend your hard-earned cash on. And whether you’re buying a house or a car, your loan payment is just one cost to consider. You must also budget for a range of additional expenses every month. In the case of a home, that would be rates and levies, property maintenance, security contracts, etc.

Likewise, having your own vehicle unlocks your ability to go where you want conveniently and independently, but you need to consider the extra costs when choosing the right car to buy. Affordability must be top priority – there’s no point in cruising around in your dream wheels if you’re digging small change out the back of your couch to make ends meet every month.

Calculating your loan payments

Let’s say you have your heart set on buying a hatchback, one of SA’s best-sellers – maybe a Volkswagen Polo, a Toyota Starlet or a Suzuki Swift. You see that the model you want costs around R250,000, so you use our handy MFC car loan repayment calculator to see what your monthly instalments will be.

Your loan, in this example, might be structured as follows:

• Purchase price: R250,000
• Deposit: R0
• Residual value (‘balloon payment’) option taken: 35% (R87,500)
• Vehicle loan finance period: 60 months
• Interest rate offered by vehicle financier: 9%
• Amount financed excluding balloon payment: R162,500
• Monthly admin fee for finance: R69.00
• Once-off admin fee for finance: R1,207.50
• Total monthly car instalment: R4,174.08 per month
• R4,174.08 a month might look affordable, but that’s just your loan repayment.

Other costs you’ll need to budget for

1. Petrol or diesel A compact hatchback with a 40-litre fuel tank will cost around R1,000 to fill up. If the car uses 8 litres per 100km, you’ll be able to travel 500km on one tank. If you travel 1,000km per month, petrol* will cost you at least R2,000 a month, in addition to your R4,174.08 instalment.
*Based on December 2022 fuel prices.

2. Car insurance This will vary based on your age, where you live, how long you’ve had your driving licence and other factors. But on average, insurance on a compact new hatchback will cost around R1,000 per month. Add that to your loan and fuel costs, and you’re already spending more than R6,000 a month.

3. Annual fees Each year you’ll have to pay for a new disc for your windscreen to prove that your vehicle is registered. The more your car weighs, the more it costs to renew your registration. A small hatchback can cost around R600 a year for a new licence disc – taking your grand total closer to R6,800 for one month of the year.

4. Maintenance If your car doesn’t come with a manufacturer’s maintenance plan to cover wear and tear, you’ll spend money regularly to keep the vehicle in tip-top shape. Getting the car serviced every 10,000 to 15,000km and maintaining fast-wearing parts like tyres and brake pads can easily cost R6,000 or more a year – that’s another R500 a month to add to your motoring budget.

5. Toll fees Toll costs can escalate quickly if you spend a lot of time driving on major highways.

6. Car washes – An average car wash can cost R100 or more. If you like to start each week with a clean vehicle – and you aren’t prepared to clean it yourself, at home – you’ll have to budget at least R400 a month for this as well.
 

As you can see, what started as a monthly cost of less than R4,200 could easily cost you a total of R7,000 or R8,000 a month instead. And accidents happen: Even if you drive ultra-carefully, another driver could crash into you. Or you might hit an unavoidable pothole that damages your tyres, rims and suspension, or knocks your wheels out of alignment. Should any of these disasters strike, you’ll have to pay the excess on your insurance claim.

And don’t forget the balloon payment in our example – at the end of your 60-month loan term, you’ll need another R87,500 to pay off your loan. The most cost-effective way to ensure this money is available when you need it is to save in a notice account every month, throughout the 60-month loan term. You’d need to invest around R1,260 a month for this strategy to work, though, which could increase your monthly vehicle expenses to R9,000 or more. Another strategy could be to take out a personal loan to cover the balloon payment when it falls due. A loan for that amount, at an interest rate of 18.75%, would cost you around R4,900 a month over 2 years – meaning it would take you 7 years in total to pay off your car.
 

Buy a car with your head, not your heart

It might be tempting to buy that cool car that you have your heart set on, but it’s a much better money choice to ensure that all the costs of owning a car will remain affordable, even if that means choosing a less expensive model that you need a smaller loan to afford. Knowing you won’t have to skimp on any of the extra costs or make other sacrifices in your budget just to afford your car, will do wonders for your peace of mind.

Did you know that if you take out MFC vehicle finance and open a Nedbank Savvy Plus or Savvy Bundle Account, you can get R200 a month cash back for the duration of your loan? For an affordable car loan tailored to your circumstances and value-added extras like cash back, choose the bank that’s best for your money.