We've all been there. Dreaming about owning a new car and scrolling through AutoTrader for that perfect ride. The temptation is there as you find that ideal match for you. You scroll down to see the price and think to yourself: "Can I afford this?"
Related: How much do you need to earn in order to afford a new car?
It's the question that we've all asked at some point in time. Even if you're not casually scrolling through the site, you will be wanting to know how much you should and should not be spending on a car.
Overspending will place you in a financial position that you don't want to be in, after all, what's the point in buying a nice new car and you aren't able to afford the petrol to put into it? Being sensible with your money here is crucial.
Working out your budget
There are several tools online that will help you calculate how much you can afford to spend on a car. It's vital that you are honest here. Much like your doctor, lying about your situation is only hurting you at the end of the day.
You will need to factor in all your monthly expenses, everything from rent/bonds, to food and even that Netflix account that you have to pay for every month. Sit down and make a note of everything you spend in a month. Enter these figures into an online calculator such as the one offered by MFC (click here to access it) and you will see what your affordability actually is.
How much you should spend
It's accepted that you spend no more than 25% of your net income on your vehicle. Your net income is the amount that you see deposited into your account, after taxes and mandatory deductions. Keeping in mind that you still have to pay your rent, medical aid, cellphone, buy food, and repay any other loans or credit cards, 25% is not all that much.
Unfortunately, it gets worse. That 25% needs to go to your instalment, insurance, and running costs. That includes your fuel costs for the month. The cost of fuel fluctuates and all depends on whether or not you're looking at an economical vehicle or one that uses a little more juice.
Calculating repayments
Once you know your budget then you can start looking for a car that fits. Use our handy finance calculator to get a rough idea of what you can expect to pay on the instalments. You can find that here: Finance Calculator
