Tips for determining your new car affordability
One of the most stressful aspects of buying a car is: can I afford this purchase? We all have dream cars – for some, it’s a Ferrari, for others it’s a Tesla, and maybe some people want a VW Kombi. But not all of us can afford the car of our dreams right now, and so it’s important that each of us understands what our budget constraints are, and whether the new car affordability is realistic or not.
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CarZar’s Car Affordability Calculator
Many of our customers are selling a car so that they can purchase a new car, so CarZar.co.za developed a Car Affordability Calculator to help them easily work out how much they can afford to repay in car instalments each month.
When trying to determine whether or not one can afford a car or vehicle finance, you generally shouldn’t plan on spending more than 15% of your monthly income on car loan repayments.
There are a number of other factors to consider when calculating your car affordability budget:
1. Major expenses
The first step is to subtract your monthly expenses from your monthly income to determine the money you actually have leftover per month to spend on vehicle finance repayments. Consider your which are your most important living expenses. These can include:
- Insurance policies
- Medical aid
- Personal loans
- Monthly security services
- Vital groceries
- Compulsory levies
- Rates (water, electricity)
If, after you’ve determined your major expenses, you discover that you need a little extra to afford the car of your dreams, you can consider cancelling clothing accounts, extra credit cards, charity donations and entertainment subscriptions like DSTV.
2. Vehicle Finance options
There are a number of different contracts available when getting your vehicle finance in order. Most include the paying of a deposit. A deposit is an initial amount that can be paid to avoid high car loan repayments, but it’s not always required. There is no minimum cash deposit when buying a new car, according to the National Credit Act, however putting down a deposit on a new or used car means you’ll pay less towards your monthly vehicle finance repayments, saving you money on a month-to-month basis. Some vehicle finance options include:
- Personal Contract Purchase (PCP) – an initial deposit on the vehicle finance, as well as fixed loan instalments for your vehicle repayment.
- Leasing – an upfront deposit and an agreed-upon fixed monthly car rental payments.
- Balloon payment – a lump sum payment to the bank at the end of the monthly car loan repayment term.
- Trading-in – dealers reduce the profit on the new car and allocates it as a ‘discount’ to the amount offered for your trade-in.
- Hire Purchase (HP) – initial deposit on the vehicle finance, as well as a fixed monthly car payment.
- Personal Loan – borrowing a lump sum over a fixed term for the purpose of buying a car.
- Guarantor Loan – a third party who, if you fail to maintain the monthly vehicle repayments, will be forced to make the monthly car loan payments.
3. Economic fluctuations
Due to South Africa’s economic fluctuations, there are a number of factors which need to be considered when determining your car affordability:
- Make sure you leave a ‘buffer’ of spare cash leftover once you’ve paid your major expenses. If you can’t, consider dropping more unnecessary expenses.
- Economic changes may result in increasing petrol price, security, insurance and maintenance costs.
- If for whatever reason you’re struggling with your car loan repayments, contact your finance institution or lender to restructure your car loan instalment contract.
4. Legal implications of buying a car
As a car buyer, you have a number of responsibilities, which include:
- Paying the required deposit.
- Paying the monthly vehicle finance instalments.
- Being available for the vehicle’s delivery.
- Until the car is paid off, it belongs to whatever financial institution has provided you with the loan. This means that until the final car finance instalment on the credit agreement has been paid, it is your responsibility to keep the car in good condition by having it serviced regularly
If you fail to pay your monthly car finance instalments, the finance company is within its rights to:
- Cancel the contract agreement
- Repossess the car
- Claim damages from you
- Sue you for the arrears
5. Getting covered
A car being financed through a finance company must receive the necessary insurance coverage. Failing to pay your car’s insurance premiums can result in your insurance policy being cancelled.
Weigh-up your options against your monthly income and get affordable car finance today – starting with calculating your car affordability on CarZar’s online Car Affordability Calculator. If you’re looking to sell your car for cash or trade-in your financed car, or perhaps you’re thinking about buying a car on finance, either way, CarZar’s Vehicle Finance Calculator is the perfect solution to figuring out the figures required to help adjust your budget along with your car affordability.
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