What are the actual costs of car ownership?
A better look into your next car purchase
When you buy a car, be it your first car or the car you upgrade to when you have a family, you need to know what costs you can expect. Don’t underestimate the costs and buy a car that you mistakenly think you can afford – rather buy right from the get-go.
- Finance charges
All banks offer free calculators on their websites or apps that help you to understand how much you can afford on your salary and how much monthly payments will be on a certain amount. These usually also allow you to play around with things like paying off a bit extra every month or having a bigger deposit or a balloon/residual payment. Experiment with these calculators to fully understand how vehicle finance works.
- Insurance costs
Once you’ve narrowed down which car you’re going to buy to three possibilities, ask your insurance broker or company for quotes to insure each option, and take this figure into account. Vehicles with low monthly sales figures are often more expensive to repair if in an accident, while vehicles such as Toyotas are frequently more affordable due to the economies of scale and the high number of vehicles sold.
- Running costs
It makes sense that small cars cost less to run than big ones, but it doesn’t boil down to fuel costs alone. The AA has a useful calculator that can supply you with a per-kilometre running cost, and it includes all costs associated with running a car. Driving an SUV might be more attractive, but there’s a chance that it could cost you almost twice as much to keep on the road than a small hatchback, once fuel, tyre, annual licensing fees (which take the weight of the car into consideration) and other wear and tear costs are taken into account.
Servicing costs fall under running costs, but they need to be made mention of separately. Many new cars come with service plans these days, which cover servicing costs for a fixed time or mileage. Don’t let this lull you into a false sense of security. When the service plan expires, you need to be able to afford to have your vehicle serviced by a reputable, accredited company. If you choose to save money by skipping a service or taking your car to a backyard mechanic, this can nullify your warranty if it is still in place.
- Unexpected costs
We never know when a stone is going to be flicked up by the truck in front of us, or a pothole in the road is going to buckle a rim and pop a tyre. When this happens, we need to be able to absorb these unforeseen costs to get our vehicle back on the road, especially if our car isn’t insured.
- Resale value
Some cars lose far more value than others, and this has to be taken into consideration when you buy a car, and when you finance one. If you finance a car with a 30% residual/balloon payment, be careful that you will be able to sell you vehicle for more than that 30% of its initial value, so that you can cover the residual when it’s time to move on. Otherwise you will have to refinance the outstanding amount and keep the car or add it to the cost of your subsequent vehicle.