To save for a car feels like a step towards freedom, and a car is also one of the biggest recurring costs you will have. The instalment is only the beginning.
Work out the full monthly cost first, and the decision gets clearer.
What does a car really cost each month?
| Cost | Notes |
|---|---|
| Instalment or savings contribution | Principal and interest, or what you save |
| Insurance | Required for financed cars |
| Fuel | Depends on distance and fuel use |
| Service and maintenance | Regular and unexpected |
| Tyres and repairs | Irregular but certain |
| Licence and registration | Annual |
| Parking and tolls | If relevant |
Here is an illustration with made-up numbers.
| Item | Per month |
|---|---|
| Instalment | R3,200 |
| Insurance | R900 |
| Fuel | R1,800 |
| Service and tyres set-aside | R500 |
| Licence set-aside | R100 |
| Total | R6,500 |
If your take-home pay is R14,000, that is almost half. See loan affordability.
Should you save or finance?
| Option | Pros | Cons |
|---|---|---|
| Save and pay cash | No interest, no repossession risk | Takes time |
| Large deposit, short finance | Lower interest and instalment | Needs savings |
| Full finance, long term | Lower instalment | Highest total cost |
A balance often works: save a deposit, then finance the rest over a short term.
How do you save for a car?
- Set a target for the deposit or the full price.
- Divide it by the months you can wait.
- Save monthly into a separate account. See sinking funds.
- Add windfalls, such as a bonus or a tax refund.
Here is a hypothetical example. A R60,000 deposit over 30 months is R2,000 a month. Saving R2,000 a month before you buy also proves you can carry a similar payment.
How do you test the budget before you buy?
Before you commit, “pay” the full monthly cost into savings for three months. In the example above, that is R6,500 a month moved into a separate account on payday.
If you manage it without missing rent or food, the car is likely affordable. If you struggle, you have learned that for free, and the money is still yours. This is the most useful step when you save for a car.
How do you finance wisely?
- Compare quotes from banks and dealers.
- Check the interest rate, fees and total cost. See interest rates.
- Read the credit agreement. See credit agreements.
- Choose a short term you can afford.
- Check the insurance requirements.
If you fall behind, the car can be repossessed and you may still owe a shortfall. See repossession. Check that the lender is registered on the National Credit Regulator site.
What about a cheaper car?
A reliable used car can have a much lower total cost. Check the service history and get an independent inspection. Avoid stretching to the limit.
Is an e-hailing car a business decision?
Yes. Work out income and costs honestly. See loans for e-hailing drivers.
What does a car cost over five years?
The monthly total looks smaller than the five-year one. Here is the earlier R6,500 a month, multiplied over a 60-month finance term.
| Cost | Per month | Over 60 months |
|---|---|---|
| Instalment | R3,200 | R192,000 |
| Insurance | R900 | R54,000 |
| Fuel | R1,800 | R108,000 |
| Service and tyres | R500 | R30,000 |
| Licence | R100 | R6,000 |
| Total | R6,500 | R390,000 |
That is R390,000 for a car that may be worth much less at the end. Seeing the five-year number helps you decide whether the car is worth the cost, and whether a cheaper one would do.
It is also a good reason to save for a car: every rand you save in advance is a rand you do not pay in interest.
How much does a used car save?
Here is a hypothetical comparison. A new car costs R300,000 and a used one R180,000, a difference of R120,000. Financed over 60 months at an assumed 12% a year, the extra instalment on that R120,000 is about R2,669 a month.
| New car | Used car | |
|---|---|---|
| Price | R300,000 | R180,000 |
| Difference in price | R120,000 | |
| Extra instalment on the difference, at an assumed 12% | about R2,669 a month |
Over five years, the difference adds about R160,000 in instalments, before insurance, which is also usually higher for a newer car. A used car needs careful checking, but it can leave far more money in your pocket. Check the service history, and get an independent inspection.
What should you check on a used car?
A short checklist before you pay anything:
- Ask for the full service history and check it matches the odometer.
- Check that the registration papers and the seller’s ID match.
- Look for rust, paint differences and uneven panel gaps.
- Check the tyres for even wear.
- Look under the oil cap for a milky film, and check the fluid levels.
- Test the lights, windows, air conditioning and brakes.
- Take a test drive on different roads, and listen for noises.
- Ask whether the car has outstanding finance, and check it.
- Pay for an independent inspection, even if the seller is a friend.
- Get everything in writing, including what is included in the price.
A walk-away option is your best tool. If anything feels wrong, leave.
How do you compare insurance quotes?
A lower premium can mean a higher excess, which is the amount you pay if you claim. Here is a hypothetical comparison.
| Quote | Premium per month | Excess |
|---|---|---|
| A | R900 | R4,000 |
| B | R780 | R7,500 |
| C | R850 | R5,000 |
Quote B saves R120 a month, or R1,440 a year, but costs R3,500 more if you claim. If you claim less than once every 2.4 years, B is cheaper. If you claim more often, A is.
Think about your driving, the area and how likely a claim is. Ask each insurer what is covered, and read the exclusions. See loan affordability to check that the whole package fits your budget.
How should you build the deposit when you save for a car?
The amount you save each month decides how long it takes. Here is a hypothetical R60,000 deposit.
| Saved each month | Time to reach R60,000 |
|---|---|
| R1,500 | 40 months |
| R2,000 | 30 months |
| R3,000 | 20 months |
If R3,000 is too much, a longer plan is fine, or a smaller deposit with a shorter finance term. The bigger the deposit, the smaller the loan, and the less interest you pay.
Put the money in a separate account, and add windfalls such as a tax refund. See sinking funds for how to keep it apart from other goals.
What should you do once you decide to save for a car?
Write down the car’s likely price, the deposit you want and the monthly running costs, and divide the deposit by the months you can wait. Open a separate account, and set a debit order for the day after payday.
If you save for a car in a pot with its own name, the money is harder to spend on something else, and you can see the goal getting closer every month.
Frequently asked questions
How long does it take to save for a car?
It depends on the price and your monthly amount. Divide the target by what you can save each month.
How much deposit should I put down?
As much as you can afford. A larger deposit lowers the instalment and interest.
Is balloon finance a good idea?
It lowers the instalment but leaves a large final payment. Read the terms carefully.
Can I settle car finance early?
Usually. Ask for a settlement quote. See settling a loan early.
What if I cannot afford the car any more?
Talk to the lender early and look at options. See what to do when you cannot pay your debts.
Should I save for a car or finance it?
A balance often works: save a deposit, then finance the rest over a short term. Compare the total cost, not only the instalment.
How much deposit is enough?
As much as you can manage without using your emergency fund. A larger deposit lowers the loan, the interest and the risk of owing more than the car is worth.
One free 5-minute form is sent to NCR-registered lenders. Each lender decides for itself and shows you the full cost before you sign.
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