Buying a car? Understand the total cost, not just the monthly instalment

Shopping for a new car is a thrill, isn't it? The more you look at cars, the more you can picture yourself cruising down the street in brand-spanking-new wheels. But, as much as we get swept up in the excitement, it's important to take a breath for a moment and consider the real cost of owning said car. To fully understand what owning a car in 2024 entails, we recommend having an honest conversation between your heart and your head by considering the following two questions::

Can you afford the monthly costs?

It's one thing to dream about zipping around in your new car, but another to manage the monthly expenses that come with it. After all, owning a car isn't just about the purchase price; it's about whether you can comfortably afford the ongoing costs month after month.

Is it a smart use of your cash?

We all need to get around, whether it's for work, running errands, or the occasional getaway. The big question is, does owning a car make financial sense for you compared to other transport options and the opportunity cost?

What is opportunity cost? Opportunity cost is the concept of what you're missing out on when you choose one option over another. For example, when you buy a car for R300,000, the opportunity cost isn't just the money spent, but also what you could've done with it instead – like investing, saving, or buying property. Essentially, by picking the car, you're forgoing the potential benefits those other choices might have offered. It's a reminder to weigh what you gain against what you lose, helping you make informed decisions that align with your priorities.

To help you figure out if buying a car makes financial sense for you, you’ll need to do some research and calculations. Here’s a step-by-step guide to help.

Step 1: What car do I need to fit my lifestyle and needs?

Consider what you need from a car. Is it for the daily commute, weekend adventures, or something else? This model should be the perfect fit for your lifestyle and needs. Let’s say you’re going for the Polo 1.0 TSI 70 kW 5-speed 2024 model.

Step 2: What will the loan repayments cost me?

Unless you're paying cash, you'll likely need a loan. A basic 2024 Polo 1.0 TSI costs around R350,000. Assuming you finance the R350,000 price over 60 months, your monthly repayment could vary based on interest rates and loan terms. Remember, there are extra costs too, like dealer fees and licensing, which can bump up your loan amount. Let’s assume an interest rate of 13.5% and zero deposit over 60 months: the monthly repayment for the Polo 1.0 TSI 70 kW 5-speed 2024 model would be approximately R8,053.

Heads-up: If you take out a loan, it’s important to not ignore how much you will end up paying in total at the end of the loan term. Using the above numbers, a 60-month loan of R350,000 at 13.5% will result in you paying roughly R490,000 in total. That’s around R134,000 you’ll pay just in interest.

Step 3: How much will I pay for fuel every month?

With petrol at R22.92 per litre (at the time of writing this piece) and the Polo's fuel consumption at 5.3ℓ/100km, your monthly petrol cost for driving 1,000km could be around R1,134. However, this could vary depending on your driving habits and traffic conditions.

Step 4: What will it cost to insure your car?

Insurance is a must, especially with a new car and a non-negotiable if you are financing it. For the Polo, you're looking at roughly R1,100 per month with a R5,000 excess. It's wise to shop around for the best quote and consider how changing your excess can affect your premium.

Heads up: Insurance premiums vary from person to person. To know what you might pay for insurance you can get a car insurance quote in 90 seconds right now. (No one is going to call you back, we promise. Like we don’t even have a call centre.)

Step 5: What about unexpected costs?

Even new cars need upkeep. Budgeting around 2% of the car's value for annual maintenance (about R7,000 or roughly R583 per month) is smart. Plus, set aside around 5% for unexpected repairs. For the Polo, that means planning for potential surprises of R17,500 each year.

Step 6: The grand total

All in, you're looking at a significant monthly outlay to own the 2024 Polo. It's not just about the repayment; it's the fuel, insurance, maintenance, and those just-in-case costs that add up.

An infographic illustrating the true cost of car ownership. It features a side view of a car that is color-coded to represent different expenses. The front portion is green, with text indicating '15% Monthly fuel costs: R1,134'. The middle section is grey and shows '14% Car insurance: R1,100' and '45% Monthly repayments: R8,053'. The rear portion is green again, with '5% Expected maintenance: R583' and '21% Unexpected maintenance: R1,458'. Each expense is associated with a percentage of total costs, represented by green dots and percentage figures.
True cost of owning a 2024 Polo 1.0 TSI 70 kW 5-speed 

How much does its value depreciate year-on-year?

Something else to bring into the equation is the car’s year-on-year depreciation. Cars lose value, and the Polo is no exception. Expect it to depreciate by 15% to 30% annually, hitting hardest in the first year. By the end of five years, your R350,000 Polo could be worth a fraction of its original price.

To buy or not to buy?

When you add up all the expenses, owning a Polo could cost you dearly over five years, far beyond its purchase price. But remember, at the end of that period, you still have a valuable asset, despite its reduced value and it took you where you needed to go over that time.

Comparing the daily costs of owning a car to alternatives like Uber or renting can be eye-opening. Consider your typical travel needs to determine the most cost-effective option. Remember, owning a car offers convenience and freedom that's hard to quantify.

Deciding to buy a car is a big decision. Beyond the numbers, consider the intangible benefits and how they weigh against the costs. It's about finding the right balance for your lifestyle and budget. So, take your time, do your research, and choose the path that's right for you. Happy car hunting!