The most common mistake people make when buying a car
Most people know what to take into consideration when being realistic about the affordability of buying and owning a car, but there’s a common mistake that many of us make.
The AA notes that the most common mistake is to ignore the fact that there are two sets of costs associated with vehicle ownership – fixed and running costs.
“Doing a proper estimation of both these costs should give you a clear idea of what you can and can’t afford,” says the AA.
Fixed costs
Fixed costs include monthly installments, insurance premiums, interest charges, depreciation, VAT and the administration fees associated with a vehicle purchase.
While these are all pretty much self-explanatory, you might be wondering what exactly depreciation is.
Simply put, it’s the difference between the amount you spend when you buy a vehicle and the amount you get back when you sell or trade it in. A new vehicle depreciates in value the moment you drive it off the showroom floor and while depreciation is the single biggest factor influencing the true cost of a vehicle, it is unfortunately often overlooked.
On the bright side, the longer you keep the vehicle, the less you will pay in fixed costs. You only pay registration and administration fees once, depreciation gets less every year, insurance gets cheaper as the vehicle ages and once the car is paid off, the monthly repayments fall away.
Running costs
The running costs are the variable costs association with vehicle ownership. These include fuel, maintenance and repairs, parking fees, licencing and even e-tolls and traffic fines.
Unlike fixed costs, running costs tend to increase the longer you own a vehicle. The older a vehicle gets, the more it costs to maintain and as the engine ages, fuel consumption could be negatively affected. However, in theory the increase in running costs should be outweighed by a decrease in fixed costs, so the vehicle should cost you less over time, provided you drive it responsibly of course.
Also read: The secret to buying a reliable car
Cost of ownership
For every R100 000 you finance on a new vehicle, you can expect to repay around R2 500 per month. This is, of course, dependent on the term and interest rate you have negotiated. Add to that the insurance premium and you could be looking at a considerably higher amount. Incidentally, the insurance premium will be influenced by your age and the area in which you reside, the make and model vehicle and your driving history.
When you factor in fuel and other running costs, the true cost of owning your vehicle could easily be double – or even triple – that! So it’s wise to consider smaller-engine, more fuel efficient vehicles over performance and sporty models if you’re buying on a budget and don’t want to break the bank.
You might be yearning to own a fancy, flashy new vehicle, but the responsible thing to do would be to go for an affordable vehicle that fulfils your motoring needs. This doesn’t mean that you have to skimp on things such as safety and comfort features. It just means that you have to differentiate clearly between your wants and your needs and don’t over-extend yourself.
Calculate and recalculate
Before you take the plunge, do your homework. Read up on the fuel consumption figures and maintenance costs of the vehicle you are considering. Don’t be blinded by an affordable price alone. Consult the annual Kinsey Report, which gives a comprehensive list of parts replacement prices and is a real eye-opener in terms of what a vehicle could potentially cost you to maintain. The purchase price might be low but you don’t want replacement brake pads to cost you an arm and a leg!
On the AA’s website is a Vehicle RatesCalculator, which takes all your vehicle’s specifications into account to help you accurately calculate what it costs to run. It will provide you with a per kilometre running cost rate specific to you and your vehicle.
Source: The AA