However, are you sure that you have ticked all the boxes? Are you aware that affordability goes beyond just the monthly insurance premium? Can you actually afford the car that you want? Be careful, you must make sure that you’ve considered all the factors and did a complete affordability analysis before committing to a purchase. To help you avoid buying a car you cannot afford, we’ve put together the ultimate checklist for first-time buyers.
Affordable vehicle finance
Research how much vehicle finance you qualify for and shop around for the best interest rates before committing to a particular finance provider. After doing your vehicle finance application, you will have an idea of the type of cars you can afford to purchase and the monthly installment you will pay. Take the monthly payback installment into account and subtract this from your monthly disposable income.
Car insurance is not optional – it’s an absolute necessity and must be taken into consideration when buying a car. It’s always best to take out comprehensive car insurance that includes third party cover. Shop around with a few insurers and roughly assess the types of insurance premiums you will be charged to cover the vehicle you would like to buy. Get to a reasonable average insurance premium and subtract it from your monthly disposable income.
Petrol expenditure is a factor that many first-time car buyers forget about. Ask any driver (and yes, listen to your parents’ advice) and they will tell you just how costly petrol is, and how big of a role it plays in your affordability analysis. Remember, the bigger the tank and the more turbo the engine, the more petrol the car will consume. Also take into account how much you will travel with the car (especially to work and the traffic on the way). Take into consideration how much it costs to fill the tank of the vehicle you want to buy and how many kilometers a full tank can cover on average. Use this information to determine how many times a month you will presumably fill up your tank and how much it will cost you. Subtract this cost from your monthly disposable income.
Service and maintenance plans
Service and maintenance plans are another two important factors involved when buying a car. Generally, new cars come with service and warranty plans, which are commonly valid for one year or 45 000km and the warranty covers mechanical and electrical failures. For second-hand cars, you will generally have to take out your own service and maintenance plans. Do your research, understand which plans are provided, which plans you need and how much it will cost you. Add these costs up and subtract the total from your monthly disposable income.
If you apply for vehicle finance and your application is approved, it means that you will have to pay the finance provider the amount for the car plus the additional interest. This can be quite a lot of money, which is why you need credit shortfall cover. This is additional cover, along with your car insurance cover, which covers the difference between what you owe your financial service provider and what your insurer pays out if your car is written off or stolen. Normally, your insurer will pay you out according to the market-related value of your car at the time of loss – this could be substantially less than the actual payback amount you owe your financial service provider. Shop around for the best credit shortfall cover and get an idea of how much extra you need to put aside for this cover. Subtract this cost from your monthly disposable income.
At the end, add up all these expenditures to evaluate whether you actually can afford to buy your dream car. If not, nothing is stopping you from working towards it one day. However for now, you have to be realistic and economical. As a first-time car buyer, you will have your work cut out for you. There are a lot of questions to ask and information to research. It can be stressful, but you will learn from the experience and ensure that you make the best decision for your lifestyle.