Buying Your First Car: New, Used, Finance and Insurance in South Africa

The one thing

The instalment is not the cost of a car. Add insurance, fuel, services, tyres, the licence and a repair fund, and only then ask whether you can afford it. Most people who get into trouble with a car could afford the instalment. What they could not afford was everything else. Work out the full monthly cost first, and choose the car to fit it, not the other way round. §1.2 lists the costs, and §1.3 works out what you can afford.

Do You Need a Car Yet?

A first car is one of the biggest things most South Africans buy before a home, and the first big contract many sign. It can change your life: a shorter, safer trip to work, a wider choice of jobs, freedom at night and over weekends. It can also be the reason a young person cannot save, cannot move out, or ends up blacklisted. Start with an honest question: do I need a car, or do I want one? Both are fine reasons, but they lead to different decisions. Ask yourself:

• How do I get around now, and what does it cost? Add up taxis, buses, trains, lifts and e-hailing for a normal month.
• What would a car change? Time saved each day, a job you could take, safety on a long walk to the taxi rank, children to fetch.
• How often would I drive? Daily to work, or only on weekends?
• Is my income steady? A permanent job with a payslip is very different from contract work or a first month in a new job.
• Do I have a driver’s licence? You need a valid licence to drive, and lenders and insurers ask for it.

Many people find that a car makes sense once their income is steady and their travel costs are already high. Others find that, for now, taxis plus the occasional e-hailing trip are cheaper, and that a year of saving first makes the car much easier to afford later. There is no shame in either answer.

Worked Example 1.1 — Kamogelo counts her travel costs

Kamogelo Seabi is 24 and works as a junior bookkeeper at an accounting firm in Rustenburg. Her take-home pay is R17 800 a month. She travels by taxi: two taxis each way, R70 a day, about 21 working days a month, so R1 470. On Saturdays she pays about R120 to visit her mother in Phokeng, and once or twice a month she uses e-hailing at night for about R150 a trip. Her total is about R2 200 a month, and about two and a half hours a day on the road. A car would cut her trip to 25 minutes each way. She decides she wants a car, and that she also needs to know what it will really cost before she visits a single dealer.

The lesson: start with what you spend now. A car replaces that cost; it does not come free.

What a Car Really Costs

When a dealer’s advertisement says “from R1 999 a month”, that is only the instalment, and often only with a large deposit, a long term and a big payment at the end (Chapter 7). The real monthly cost of a car is:

• The instalment (if you finance it), including the bank’s monthly service fee.
• Insurance. A financed car must be comprehensively insured (Chapter 8). For a young driver this can be R800 to R1 500 a month or more, depending on the car, where you live and park, and your driving record.
• Fuel. Work it out from the distance you drive (§1.3). Fuel prices change every month.
• Services and maintenance. Services every 10 000 to 15 000 km, or every year, plus brake pads, wipers, a battery every few years. Put money aside each month even if the car is new.
• Tyres. A set of four tyres for a small car can cost several thousand rand; they last about 40 000 to 60 000 km.
• The licence disc, renewed every year, plus the cost of the roadworthy and change of ownership when you buy (Chapter 9).
• Tracking, if your insurer requires it for your car.
• Parking and tolls, at work, at college or in town.
• A repair fund: money for the burst tyre, the cracked windscreen or the insurance excess (Chapter 8).

There are also once-off costs when you buy: the deposit, the bank’s initiation fee (often added to the loan), the roadworthy certificate and registration fees on a used car, and sometimes delivery or “admin” fees that a dealer adds. Ask for each one in writing before you agree to anything (Chapter 10). Depreciation is a cost too, even though you never pay it as a bill: the car loses value every year, fastest in the first few years (Chapter 2). It matters when you sell or trade in (Chapter 12).

What Can You Afford?

Use the affordability worksheet (Appendix A) to work out a monthly car budget before you look at cars:

1. Start with your take-home pay: what actually arrives in your account, not your salary before deductions.
2. Subtract your fixed costs: rent or board, food, phone and data, school fees, family support, other accounts and loans, savings.
3. Add back what the car replaces: the taxi, bus and e-hailing money you will no longer spend.
4. What is left is the most the whole car can cost you each month: instalment, insurance, fuel, maintenance and the rest. Leave a margin; prices go up and incomes do not always follow.

A common rule of thumb is that all your car costs together should be no more than about a fifth to a quarter of your take-home pay, and the instalment alone much less than that. It is only a guide: someone with no rent to pay can afford more; someone supporting a family, less. Fuel is easy to estimate:

• work out how many kilometres you will drive in a month (to work and back, plus weekends);
• divide by 100 and multiply by the car’s fuel use in litres per 100 km (a small petrol car uses about 6 to 7 litres per 100 km in mixed driving);
• multiply by the price of a litre of fuel.

Worked Example 1.2 — Kamogelo’s car budget

Kamogelo fills in the worksheet. Her take-home pay is R17 800. Her fixed costs are R11 300: board and food at home R3 500, a contribution to her mother R2 000, phone and data R550, a store account R450, clothing and toiletries R1 300, a funeral policy R300, savings R2 000 and day-to-day spending R1 200. That leaves R6 500, and adding back the R2 200 she spends on travel gives R8 700. She does not want to spend all of it on a car, and she wants to keep saving. She sets a car budget of about R4 500 a month for everything. She estimates:

• fuel: 25 km each way, 21 days, plus about 300 km of weekends, is about 1 350 km a month; at 6.5 litres per 100 km that is about 88 litres, roughly R1 900 a month at the current price;
• insurance on a small used car: about R950;
• maintenance and a repair fund: R450;
• licence, parking and other: R100. That is about R3 400 before the instalment, which leaves about R1 100 for the instalment itself, far less than she expected. She has three choices: a cheaper car, a bigger deposit so she borrows less, or a little longer to save.

The lesson: work out the running costs first; the instalment is what is left over, not the starting point.

Kamogelo’s example shows the hard truth of the worksheet: once fuel and insurance are counted, a young driver on a modest income can usually afford a much smaller instalment than the advertisements suggest. Chapter 6 shows how the deposit, the term and the price change the instalment; Chapter 2 helps you choose a car that fits.