Guidelines to buying a car with your salary

If you’re a new car buyer and not sure exactly what kind of vehicle you can afford, it can be tricky to sift through all the online financial advice, especially when they start throwing in ‘balloon payments’ and ‘cost of ownership’.

Even if this isn’t your first car, the sheer number of options and financial solutions out there can make purchasing a vehicle tiring, even before you’ve even gone for your first test drive! To help you find your dream wheels that suit your budget, we’ve put together a handy guideline to get you started.

How much do I qualify for?

The general ‘rule of thumb’ is that you should not spend more than 20% of your gross monthly income on vehicle repayments. To give you an idea:

• R20 000 per month = R4 000 monthly installment
• R30 000 per month = R6 000 monthly installment
• R45 000 per month = R9 000 installment
• R60 000 per month = R12 000 installment
• R80 000 per month = R16 000 installment
  
  

Using the 20% rule, you can determine what you should be able to pay on a vehicle installment every month. The next step is to figure out exactly how you’ll be structuring your finance deal.

It’s not just about your salary

Qualifying for vehicle finance is not as simple as what you earn per month. In addition to your monthly salary, finance houses (banks or institutions like Wesbank) will also look at your credit history and request bank statements to get an overview of your other monthly expenses.

If, for example, you are already spending 90% of your monthly salary on rent, school fees, groceries and municipal accounts, amongst other expenses,, you might not qualify as you don’t have enough funds available to cover a vehicle payment as well.

Finance houses will also look at your credit record: if you have had a rough year and have missed or paid late on any of your monthly bills and accounts, you might be considered high risk. The good news is that finance houses look at your current financial situation, so if you go back six months later and show that you are now paying everything on time - and have the extra funds available - you stand a good chance of qualifying for finance.

You can structure payments to suit you 

Wesbank has an excellent calculator where you can calculate your monthly installments based on the following:

• The purchase price of the vehicle
• The current interest rate (it’s filled automatically)
• Amount you will deposit
• You don’t have to pay a deposit, but the more you can pay upfront the less your installment amount will be. This is a great incentive to save as much as possible before you purchase a vehicle.
  
  

Payment term

• • This is the amount of time given to repay the loan. 
  • The most common term is 60 months (5 years), but you can shorten or extend the term based on your credit standing and what the finance house is willing to accommodate.
  • A shorter term means you pay less interest in the long run.
  • A longer-term means you pay more interest in the long run, but less per month.
    
    

• • A balloon payment is a way for you to lower your monthly installments, but at the end of the finance agreement you have to pay a predetermined lump sum. This is handy if you need to lower your monthly repayments, but you must save and prepare for that lump sum five years later.
    
    

OK, so what can I afford?

Again, it all depends on your finances, whether you will be paying a deposit or opting for a balloon payment. But, to give you an idea using the ‘rule’ of 20% and the Wesbank Calculator at:

• 0% deposit
• 0% balloon payment
• 60-month repayment term
• Entry-level vehicle pricing 

Suzuki S-Presso - from R178 900

• Installment: R4 076
• Earning bracket: R 18 000- R30 000 per month

Suzuki Swift - from R213 900

• Installment: R5 236
• Earning bracket: R20 000- R30 500  per month

Suzuki Baleno - from R255 900

• Installment: R5 736
• Earning bracket: R20 000- R30 000 per month

Suzuki Jimny 3-door  - from R399 900

• Installment: R8 990
• Earning bracket: R35 000- R45 000 per month

Suzuki Jimny 5-door - from R429 900

• Installment: R9 878
• Earning bracket: R50 000-R60 000 per month

Suzuki Fronx - from R297 900

• Installment: R6 670 per month
• Earning bracket: R30 000- R50 000 per month
  
  

Can I afford the amount I qualify for?

This is where you really need to pay attention! Let’s say you qualify to purchase a vehicle for R200 000; keep in mind that your monthly installment will not be your only vehicle expense. You still need to budget for:

• Insurance
• Fuel
• Tyres
• Cleaning
• Toll fees

At the end of the day, the best advice is to be brutal with yourself about your spending habits. Don’t purchase a vehicle at your limit and think, “I’ll find a way” - this could end up being a nightmare, and that’s the last thing you need when you really just want to enjoy your gorgeous new car.

Go over your finances in detail. Use the calculating tools available and opt for a vehicle that comfortably fits within your budget - with room to spare for fuel or interest rate hikes.

Your car should be an asset to your lifestyle, not an item that causes you monthly anxiety because you don’t know how you’re going to make the payments.

To calculate how much your car instalment can possibly be, use our instalment calculator.