In recent years, South African consumers have faced relentless economic challenges, with inflationary pressures and escalating living costs squeezing household budgets. The burden extends to car ownership, where the true expenses far surpass the initial purchase price. As petrol prices surge, the rand weakens, and inflation bites deeper, a sobering reality emerges: owning a car demands more than just monthly repayments.
A study conducted by Naked Insurance sheds light on the hidden costs of owning a vehicle, particularly in the South African context. According to their analysis, the total expenditure for maintaining a new car valued at approximately R350,000, including fuel, insurance, and maintenance, surpasses the typical monthly repayment by a staggering 55%. This revelation underscores the necessity for consumers to adopt a more comprehensive approach to budgeting, factoring in all associated expenses.
The financial landscape for South African consumers has been tumultuous, marked by interest rate hikes and persistent inflationary pressures. Despite belt-tightening measures, relief remains elusive, amplifying the financial strain on households across the nation. The relentless surge in petrol prices, soaring by over 47% since February 2021, exacerbates the financial burden, further compounded by electricity challenges and escalating food costs. As disposable income dwindles, meeting mortgage payments, car loans, and credit card obligations becomes increasingly challenging, prompting consumers to seek additional sources of income to service their debts.
In this economic climate, individuals are compelled to scrutinize their expenditure meticulously, with particular attention to the costs associated with vehicle ownership. Ernest North, co-founder of Naked Insurance, highlights the stark reality of escalating car ownership expenses over the past two years. TransUnion’s latest vehicle pricing index (VPI) corroborates this assertion, revealing an average loan size of approximately R359,000 for new cars in South Africa.
Delving into specifics, Naked Insurance examines the actual cost of owning a typical car, as defined by TransUnion, in South Africa as of February 2024. Their analysis focuses on financing a new VW Polo 1.0 TSI, priced at around R348,200. While cash payment remains an option for some, the majority resort to financing options, often accompanied by a cash deposit. A typical five-year repayment plan, with a 10% deposit and an interest rate of 13%, translates to a monthly payment of approximately R7,222.
However, the financial commitment doesn’t end there. Fuel expenses constitute a significant portion of the overall cost of ownership. Calculating an approximate petrol bill entails considering fuel consumption and monthly travel distance. With petrol prices hovering around R23 per litre, a car with a consumption rate of just below 20km per litre would incur approximately R1,150 for every 1,000 kilometres travelled. Yet, the volatility of petrol prices underscores the need for flexibility in budgeting to accommodate fluctuations.
Insurance is another non-negotiable expense, particularly for those securing loans for vehicle purchases. Comprehensive car insurance is typically mandatory, safeguarding against potential losses and liabilities. While premiums vary based on individual risk profiles, estimates suggest an average monthly premium of R970 for a VW Polo.
Furthermore, budgeting for repairs and maintenance is imperative to mitigate unforeseen expenses. Despite service plans, additional costs for consumables and major repairs must be considered. On average, maintenance expenses amount to roughly 2% of the car’s value annually, equating to approximately R6,900 for a car valued at R348,000. For vehicles without warranty coverage, additional budget allocation ranging from R7,500 to R15,000 annually is prudent to cover servicing and unexpected breakdowns.
Summing up the expenses, driving a modest car over 1,000 kilometres per month translates to annual costs exceeding R134,000. Over the five-year financing period, total expenses escalate to approximately R670,000. However, upon completion of the repayment term, the car’s residual value is estimated at around R165,000, resulting in a net cost of approximately R505,000 for ownership.
Ernest North advises consumers to exercise caution in budgeting, recommending a buffer to account for potential increases in petrol prices, insurance premiums, and maintenance costs. The accompanying table outlines the estimated monthly expenses for owning and driving a new VW Polo 1.0 TSI, providing valuable insights for South African consumers navigating the complex terrain of car ownership.
Expense Cost Car payment R7,222 Fuel R1,150 Insurance R970 Long-term maintenance (average per month) R575 Services & unforeseen maintenance R1,250 Average cost per month R11,167 Total after 60 months R670,020
In conclusion, the true cost of owning a car extends far beyond the initial purchase price, demanding meticulous budgeting and prudent financial management. As economic uncertainties persist, South African consumers must heed the insights provided and adopt a holistic approach to car ownership, ensuring long-term financial sustainability amidst challenging times.
