Car finance - How much does one qualify for?

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mcthomas0

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I am in the process of looking for a car to buy. How does one go about knowing how much you can afford? I have contacted a dealer who is obviously overly keen to try and get your sale. However, it would be pointless if you dont know roughly how much you qualify for.

If I earn R9k a month and normally put away 4-5k as savings, after expenditure in a month then what value of car could i potentially qualify for? I will be looking to buy from a dealership and finance the car over 4-5 years.

Any help would be greatly appreciated as i am a first time buyer and unaware of the potential "hidden" costs associated with buying a car.
 
Well legally you cannot pay more than 30% of your salary towards a finance loan.

That being said don't bargain on stretching yourself and paying exactly that for a car instlalment.

Working on 10-15% of your salary is a much more sensible approach.
 
Also remember insurance, it could work out a pretty penny extra you need to budget for. You can get some estimates of what it will cost online.
 
Only you know what you can afford, don't ask the dealer as they then see you as clueless and will try rip you off.
Let's say you decide you can afford R3k pm, and have a 10% deposit, you can then use one of the many online car finance calculators to tell you what the purchase price will be on those figures.
Don't EVER go for a balloon/residual payment, you will be sorry, it's just a technique the finance houses use to get people into cars they actually can't afford.
Don't buy at the max you can afford, cause after a month, the excitement wears off and you gotta pay all that money back.
As Sauron says, be sensible, don't make an expensive mistake ;)
 
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Oh yes, don't forget "on the road" costs (license and registration, check up etc...)
Dealers charge anywhere up to R5k for this, I think this is a rip off but some dealers wont budge on this, it should be included in the price if you ask me...
 
Another thing to take into account is a probable rise in current interest rates. When making use of the online finance calculators increase the interest rate with one or two percent and see what effect it will have and whether you will still be able to afford it.

Currently things looks more like we might see a reduction in current rates to stimulate growth but you never know...
 
MKFrost said:
Another thing to take into account is a probable rise in current interest rates. When making use of the online finance calculators increase the interest rate with one or two percent and see what effect it will have and whether you will still be able to afford it.

Currently things looks more like we might see a reduction in current rates to stimulate growth but you never know...
Click to expand...

This is a very good idea. Even though there might be a small rate cut in the near future, rates are almost guaranteed to rise over the 5 years that its going to take to pay the car off.
 
Factor the cost of petrol into you budget too. This can really eat your budget up. Depending where you live and how far it is from work, you can easily spend a couple thousand rand on petrol per month.

And as you may know, generally the price of petrol mostly only goes up.
 
I would be suggesting around the maximum of R75k tbh..

That would put your repayments at about R1600, so you're insurance should be in the region of R600 (assuming you're over 25/27, otherwise it will be higher), and that still leaves you some money for petrol and still have left over for savings.
 
MKFrost said:
Another thing to take into account is a probable rise in current interest rates. When making use of the online finance calculators increase the interest rate with one or two percent and see what effect it will have and whether you will still be able to afford it.

Currently things looks more like we might see a reduction in current rates to stimulate growth but you never know...
Click to expand...

Agree 100%. I normally do a type of "Stress Test" by taking all my long term debt in consideration (House, car...) and add 2.5% into the equation to recalculate the installments.
 
In the long run its far better to purchase cash and avoid paying interst. Seriously, bought my first car cash for 14K and the next one cash for 64K. Been working my way up. Anyways, the long term savings when one compares the cost of finance and depreciation on a new car (banks seldom finance second hand cars) are insane.

Car payments should be a single event, not 60 events.
 
Banks seldom finance second hand cars?!?!?!

You might want to tell that to the banks... they finance a hell of a lot of them.
 
ToxicBunny said:
Banks seldom finance second hand cars?!?!?!

You might want to tell that to the banks... they finance a hell of a lot of them.
Click to expand...
Oh, thought I heard otherwise. If you have actual experience in the matter then you know a lot more than me!
 
mcthomas0 said:
I am in the process of looking for a car to buy. How does one go about knowing how much you can afford? I have contacted a dealer who is obviously overly keen to try and get your sale. However, it would be pointless if you dont know roughly how much you qualify for.

If I earn R9k a month and normally put away 4-5k as savings, after expenditure in a month then what value of car could i potentially qualify for? I will be looking to buy from a dealership and finance the car over 4-5 years.

Any help would be greatly appreciated as i am a first time buyer and unaware of the potential "hidden" costs associated with buying a car.
Click to expand...

Banks will look at 'affordability'. Have a look here for some good advice:

http://www.sbwire.com/press-release...ps-to-know-about-vehicle-financing-233313.htm
 
Cius said:
Oh, thought I heard otherwise. If you have actual experience in the matter then you know a lot more than me!
Click to expand...
I've financed three second hand vehicles through the banks.
 
Cius said:
Oh, thought I heard otherwise. If you have actual experience in the matter then you know a lot more than me!
Click to expand...

I would guess that banks finance more used vehicles than new. The last 4 vehicles I've owned have been used and financed by the banks.
 
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