We wish it was as easy as heading down to the car dealership, finding a car and driving away with it 10 minutes later. Unfortunately, buying a car requires a bit more effort and planning, but it’s definitely not an impossible thing to do. If you can afford a car (which you can if you have a decent income and money skills), then you can figure out the financing details in order to buy one.
First thing’s first, how much do you earn? Do you earn a stable income or does it fluctuate? Is there a way in which you can make more money?
Without an income, you won’t be able to pay off the car on a monthly basis and your application won’t be approved for a loan. You need to decide whether you earn enough of an income to realistically afford an extra expense at the end of the month without leaving you completely broke. And if you don’t, your best option would be to hold off on buying a car for now and saving up for a solid down payment (but we’ll still get to that).
Start thinking about ways you can earn a raise or promotion and if that’s not an option, consider finding work somewhere else where you’re offered better pay. Otherwise, if you’re happy enough where you are, try to take on a hobby or side-business to bring in money from somewhere else. You need to look at the bigger picture, which is why the next step is looking at your expenses.
You know the drill: debit orders, subscriptions and memberships, insurance, groceries, rent, coffees, internet, lunches, clothing – list all your expenses for the month and cringe at the total. But only for a moment because you’re about to manage those expenses and bring the total down a bit.
It’s time to take a hard look at what you spend your money on every month. You’re about to add a car loan (and a bit more) to your list of expenses and you need to set up a strict budget to ensure you make it through every month relatively comfortably. Cut out the things you can live without, don’t really use but are paying for anyway, and all the extra luxuries (at least by half). You’ll find you actually make more money than you thought you did.
Once you’ve done that, it’s time to come up with a savings plan.
We mentioned earlier something about saving for a down payment. The down payment you put on your car will, essentially, reduce the debit order of your car loan every month because you’ll be paying for a portion of the vehicle’s price up front. This will make it a more affordable cost to add to your monthly expenses.
So, all birthday cash, bonuses and holiday money needs to be saved, along with whatever you’re saving from those cut-out expenses. At least for a few months before you go to the dealership and buy a car. In the meantime, while you’re saving for a down payment, you can start the browsing process.
While you’re on the income-versus-expense mission, you need to set yourself a budget for the car you want to buy. And while it may seem that you can afford any car in monthly installments, you can’t think like that. Limit yourself to X amount per month that you will be able to afford for the next however many years and start browsing.
You need to be stick to your budget and that may require you to look at the used car dealerships, which isn’t a bad thing. It’s actually a smart way to go because the options will be more affordable and not have the “new car’s hidden costs” problem.
If you’ve spotted “the one”, then it’s time to work out the loan situation. You can use a car loan calculator that allows you to put in the price of the car, your down payment amount, the number of months you’d like to pay it off over and a balloon payment cost (if there is one). The calculator will then generate the amount of money you can expect to pay every month for the car of your choice.
It does the hard work for you and is a quick way to see whether the car does, in fact, fall within your budget or not.
Unfortunately, there are a few additional costs that you’ll also need to budget for when you get your car. And yes, they’re monthly expenses (do you understand now why you needed to cut down on your other expenses?).
The first thing you need to do is get car insurance and cover your vehicle in the event it’s involved in an accident. And you need to do it because more than 1000 accidents happen per month in South Africa according to 2017 SA Road Safety Report.
Another monthly expense (that won’t be a fixed amount) is petrol. Your car needs it to drive and there is no point in being able to afford a car but not petrol. Head back to your budget drawing board and make sure you have all the necessary finances.
