Many of us would jump at the chance to own a luxury car, whether for status, driving pleasure, future resale value, or a combination of incentives. If you are considering a purchase, think carefully before you invest, as you’ll be up for much more than a simple monthly instalment.
We unpack the costs attached to luxury car ownership, and tips for budgeting should you wish to go ahead.
Tip: Insuring your car is a must, irrespective of its value. Find out more about vehicle insurance here.
Consider inflation
George Simitopoulos, CEO of Carfin, notes that interest rates and inflation have made the expense of a luxury vehicle, or performance sports car, even more prohibitive.
“At the current interest rate, you can expect to pay around R20,000 per instalment on a car of R1 million. If you bought a car last year, the interest rate hike has likely brought you to the point of maximum affordability – and interest rates continue to increase.”
Added to this is the ballooning cost of living, and the general expense associated with vehicle ownership.
“The fuel price wasn’t much of a concern for luxury car owners three years ago, but it’s become a big item now, especially if you drive the vehicle regularly,” he notes.
Understand total monthly costs
It’s important to understand the total monthly cost of vehicle ownership, notes Lebogang Gaoaketse, head of marketing and communication at WesBank. In addition to fuel and instalments, this will include an insurance premium and maintenance expenses.
“These expenses increase regularly to reflect inflation and interest rates, the rising petrol price, and other fluctuating costs,” says Gaoaketse.
Fuel consumption may vary, depending on how often you use your car, but fixed monthly payments, such as the vehicle repayment terms and insurance costs, remain a constant and must be included in your monthly household budget.
The monthly vehicle ownership figures reflected in the table below are based on shifting market data and are an approximate guideline only. The calculations are based on a vehicle valued at R800,000 that travels roughly 2,500 km per month, and a prime interest rate of 10.5%.
|
Loan instalment |
Fuel cost |
Insurance |
Running cost |
Total monthly cost |
|
R15,448.91 |
R6,771 |
R5,139 |
R1,037.94 |
R28,396.85 |
“Luxury cars have bigger and better-quality tyres that cost more and need replacing,” Simitopoulos points out. “You don’t want to cancel other insurances or household line items just to pay for car expenses.”
Consider fixing the interest rate
Fixing your car loan interest rate for a few years will make budgeting easier, notes Simitopoulos.
Below is an example of an interest calculation for a car of R1 million. Please note that figures are approximate.
|
Lending rate |
Period |
Instalment |
Interest |
|
13% |
72 months |
R20,000 |
R440,000 |
|
13% |
60 months |
R23,000 |
R365,000 |
|
13% |
48 months |
R27,000 |
R288,000 |
The interest rate you are given depends on your risk profile. If your risk profile is good, you may get financing at 10% instead of 13%. The following example considers the same figures at a better lending rate. The figure indicates the dramatic difference good financial behaviour can make.
|
Lending rate |
Period |
Instalment |
Instalment difference |
|
10% |
72 months |
R18,600 |
± R2,000 per month |
Finally, Simitopoulos recommends “right-sizing” to fit your budget – that is, not overextending yourself by buying a car that’s beyond your means.
“If you need a balloon payment, it means you can’t afford the car,” he says. “Rather look at something cheaper, such as a car that’s a year or two older.”
Consider why you need a car and whether the make and model you have in mind will suit your goals, lifestyle, and pocket. This is more important than driving a flashy vehicle to impress other road users.
Tip: Do you qualify for a vehicle loan? Find out what your credit score is here.