How much car can I afford?
The monthly repayment is only part of what a car costs. Here is a simple way to work out what fits your pay before you fall in love with a car on the showroom floor.
A rule of thumb to start with
A common guideline is to keep your car repayment under 20% of your take-home pay, and all your car costs together (repayment, insurance, fuel, services and tyres) under about 30%. It is not a law, but it leaves room for everything else in your budget.
On a take-home pay of R21 442, 20% is about R4 290 a month for the repayment.
A worked example
Say you want a R300 000 car. You pay a 10% deposit of R30 000 and finance the rest over 72 months at 12.25% a year (prime of 10.75% plus 1.5%). With a R1 207.50 initiation fee and a R69 monthly service fee, the repayment is about R5 406 a month. That is 25% of R21 442, so it is above the rule of thumb before insurance and fuel.
Longer terms cost more
A longer loan lowers the monthly amount, but you pay more interest in total. Same car and deposit as above:
| Term | Monthly repayment | Total interest |
|---|---|---|
| 60 months (5 years) | R6 136 | R92 823 |
| 72 months (6 years) | R5 406 | R113 091 |
| 84 months (7 years) | R4 893 | R133 999 |
Be careful with balloon payments
A balloon (or residual) is a lump sum you still owe at the end of the loan. On the same car over 72 months, a 30% balloon drops the repayment to about R4 554 a month. But you pay about R28 600 more interest and still owe R90 000 at the end. You will need to pay it, refinance it or trade the car in.
Don’t forget the running costs
- Insurance: banks require comprehensive cover on a financed car. Get a quote before you choose.
- Fuel: use our trip calculator with your daily distance to see your monthly fuel bill.
- Licence, services and tyres: put aside a set amount every month.
What the bank will check
Under the National Credit Act, lenders must check that you can afford the loan. They look at your payslips, bank statements, credit record and other debts. A bigger deposit and a clean credit record usually get you a better interest rate.
Figures are estimates for illustration. Your bank’s rate and fees may differ. This guide is general information, not financial advice.