With millions of South African consumers still under financial pressure, the costs involved in owning and running a car can play a major role in an individual’s monthly expenses. According to Chris de Kock, Executive Head of Sales and Marketing at WesBank, “The current low interest rate environment now means that the car’s instalment tends to make up less than half of an owner’s total monthly mobility costs, something which not everybody is fully aware of when buying a new car. The significant increases in the price of fuel, coupled with insurance premiums that increase annually as well as the cost of maintaining the car, mean that it is very important to budget carefully, for the total mobility cost when planning to buy a car.”
WesBank provides various online calculators in order to help the consumer with the different areas of budgeting. These calculators include:
- The WesBank Monthly Affordability Calculator: This will help you to determine what your monthly expenses are and what you can afford.
- The Vehicle Purchase Price Calculator: Once you have worked out what monthly instalment you can afford, this tool calculates the maximum cash price of the car that you should buy.
- The Vehicle Repayment and Insurance Calculator: This calculates the monthly instalment as well the various insurance product premiums.
De Kock says, “There are four factors affecting your monthly mobility cost, which can broadly be categorised into fuel costs, monthly instalments, running and maintenance costs. The most significant change in the monthly ‘mobility cost basket’ comes from the fuel price. Over the last few years, the rising fuel price has resulted in this becoming one of the biggest expenses associated with owning a car, with the price of petrol currently topping R13 per litre.
“According to WesBank calculations, and as illustrated in the graph that follows, using a prescribed set of parameters, the average monthly fuel expense has risen from R1 421.00 in 2010 to R2 275.00 in 2013, a staggering increase of 60%. The fuel portion of the Total Mobility Calculation* basket has therefore increased from 28.89% in 2010 to 37.75% in 2013, an increase of 8.86%.”
De Kock continues, “During the same time, the instalment of the vehicle marginally increased from
R2 509.02 in 2010 to R2 618.84 in 2013, a marginal increase of 4%. However, in terms of the overall portions of the Total Mobility Calculation* basket, this represents a decrease from 51.01% of the total costs to 43.46%, or an overall decrease of 7.55%. Insurance and running costs changed negligibly.”
The two most important factors in managing your monthly fuel bill, according to De Kock, are: firstly, buying a car that is fit for purpose – for example, if you are a high mileage driver, then choosing a car that is fuel efficient makes more sense than a high performance motor, and secondly, your driving behaviour, which has a direct impact on your vehicle’s fuel consumption. For example, fast acceleration and high speeds drastically increase fuel consumption.
Regarding monthly instalments, De Kock says, “These payments are obviously a large portion of the monthly expenses associated with owning a car. While financing a car allows people to own a car that they would otherwise be unable to afford, it is important that these monthly repayments are manageable and fall within your budget. Even though we are currently in a low interest rate environment, it’s also important to take into account how a rise in interest rates would affect your monthly instalments and whether you would still be able to afford the payments. If you find yourself unable to meet your monthly instalments, speak to the financing company sooner rather than later to discuss a solution.”
Maintenance costs are the actual costs that come directly when you use your vehicle, and include tyres, servicing and repair costs. Keeping your car in good condition can help reduce the running costs of your vehicle. Remember to service your car within the prescribed intervals and always service your car within your car’s manufacturing franchise. Running costs include items like toll fees, annual vehicle licensing costs and potential fines.
De Kock notes that car insurance is vital in protecting you from potential financial catastrophe in the event of theft or a serious accident. “Most importantly, ensure that your car is comprehensively insured at all times. If you feel that you are paying too much for your insurance, instead of cancelling your policy, speak to your insurance company to see if there are ways of reducing your monthly premium. However, ensure that you fully understand how the changes to your policy affect the terms and conditions of your cover.”
De Kock points out that opting for higher voluntary excess payments in order to reduce your monthly premiums may seem like an attractive option. However, this leaves you vulnerable in the eventuality of a serious accident, where the claim and subsequent excess payment would result in a financial shock to your monthly budget.
“Spending some time focusing on each of these factors will enable you to better manage the monthly expenses of owning a car, which is essential in the current market conditions,” concludes De Kock.
*Our Mobility Calculation Model is based on an entry level vehicle costing R100 000 in 2007, increasing by new vehicle CPI rate compounded annually, travelling an average of 2 500 km per month, running on Unleaded 93 Inland. Financed at prime +2% over 60 months with no Balloon Payment (Source: WesBank Calculators, SAPIA and AA websites).
With over 40 years of experience WesBank has become the leader in asset-based finance solutions in South Africa. The company is focused on providing quality asset finance and fleet management solutions for a number of market sectors. WesBank’s asset finance portfolio includes Aviation, Agriculture, Commercial and Company Vehicles, Plant and Office Equipment, Public Sector and Franchise finance solutions. Visit www.wesbank.co.za for more information.