The Full Cost of Ownership
Written By Nobuhle Sekobane
When purchasing a car, we often make the mistake of looking at the monthly instalments and insurance premiums as the only indication of the full cost of owning such car. However, there are other factors you may need to consider when making the decision to buy a new or used vehicle.
Interest Rate Hikes
Consider this: would you still be able to afford the monthly instalments on your car if a hike in interest rates suddenly meant you would have to pay R300.00 – R500.00 more on your next instalment? In South Africa, lending rates are subject to review every 2-3 months depending on the economic climate. If an announcement is made by the MPC to increase the said Lending Rates, you need to have made allowance for the increment by working in an extra R500 or so to the anticipated instalment quotation for your new car. If the inflated amount is still within your affordability, you will have made a prudent buying decision!
On average, a vehicle depreciates by 20% in the first year of ownership and a further 15% per year thereafter. This is useful to know; especially if you are thinking about purchasing the car in cash instead of taking finance with a bank. In essence, if you pay R150 000.00 for a car and your average mileage is around 25 000km per year, in three years’ time your car will be worth approximately R86 700.00. However, you can claim some of this depreciation in your annual tax return for any business travel. For this purpose, you would have to keep a register to log the mileage done on every business or work-related trip. This is also applicable to vehicles that are financed with the bank.
Consider what your fuel costs are likely to be by asking about the car’s fuel consumption in relation to the mileage you would normally travel in a month. This information is normally available in the brochure that you would be given by the dealership. In the case of a private sale, I would strongly suggest that you research the model you have chosen online.
Maintenance & Servicing Costs
Remember to ask about any Maintenance or Service Plan that may come with the car. New vehicles are sold with either one of these plans to cover the cost of routine services as well as warranty on major vehicle components such as the engine and gearbox. If you purchase a pre-owned car, you would inherit the balance of the Maintenance or Service Plan subject to the mileage on the car at the time of purchase. Also important to note is that there is a fundamental difference between a Maintenance Plan and a Service Plan. A Maintenance plan is generally comprehensive (Full) cover for routine servicing and warranty on the major components of the car i.e. : Engine, Gearbox & Electronics – whereas a Service Plan is selective cover for routine services and normally includes a co-payment from the owner of the car. Another key consideration to be made is that if the car that you are looking at purchasing is out of Warranty or Service Plan, be prepared to cover the full cost of routine services. This could be as little as just under R1000.00 for smaller engines and depending on the type of service due, to as much as R12 000 for bigger models.
The decision to purchase a car is no simple feat and must be entered into with due consideration of the elements above. Never be afraid to ask the salesperson as many questions as possible and always conduct thorough research before entering the dealership.
Branch Manager at a Premium car dealership