Buying a new car is a milestone event especially when it’s your first. It’s about independence, new opportunities, and stepping into bigger decisions about financial management. Most of us rely on vehicle finance when buying a car, and that means thinking beyond monthly payments to also consider running costs, your insurance costs, and your overall cashflow.
Is it better to buy a new or used car?
There’s nothing quite like that new car smell but when you’re in the market, you may find that a car that’s new to you offers just as much comfort as a car that’s never been driven before and, at a better price too.
Both new and second-hand vehicles have their pros and cons. A new car will offer the best reliability and warranties but comes at a higher cost and may depreciate faster.
Used cars are often more affordable, with a lower upfront investment. While reputable dealerships typically disclose a vehicle’s history, it’s still important to review service records, mileage, and overall condition before buying. You may also have to replace high-cost items such as tyres sooner. However, you might be able to afford a better brand or higher specs than you would if you were buying new. If you’re buying from a dealership, you can ask about pre-owned cars with low mileage that have undergone all the checks that give you peace of mind. Check out our full guide to buying and selling a car.
Understand your financing options
Cars are big-ticket items, so most people will rely on a finance arrangement. You can approach more than one vehicle finance institution to get the best quote, which will depend on your own credit history and whether you can pay a deposit. When you buy a car with vehicle finance, comprehensive car insurance will usually be a prerequisite.
You can also consider paying cash. If you’re just starting out and don’t qualify for car finance - for instance, if you’re a student or unemployed, buying an older car for cash, at a lower price, allows you to get around without relying on public transport.
In this case, you have more control over the car insurance arrangement that suits you. You can get comprehensive car insurance, which protects you in the event of an accident, theft, or other adverse events. This is particularly important if you can’t easily replace your car. Third-party insurance cover will protect you if you’re involved in an accident with another driver and face costly repairs to their car.
How car financing works
If you’re planning to buy a car with vehicle finance, it’s tempting to only consider the monthly installment advertised by dealerships. Remember, your installment depends on how your finance arrangement is structured, and may differ from what’s advertised. So it’s also important to consider the overall cost of the car, the term of the loan, and whether you have a deposit available.
Financing your vehicle means you need to think about your cashflow over the next few years, not just the here and now. If you’re saving for another big-ticket item, such as a house or university fees, you may want to buy a cheaper car now so that you have room in your budget to save more. Keep in mind that if interest rates rise, your monthly repayments will increase. To help you budget, you can use the Sanlam loan repayment calculator to determine what you can afford and estimate your future payments. You should also consider whether to include a balloon payment in your finance arrangement. These can make your monthly payments more affordable, but in the wrong circumstances, they can present a challenge.
What is a balloon payment - and how does a balloon payment work?
A balloon payment is the final, bulk payment that you make on your vehicle. This is usually calculated as a percentage of the original purchase price - sometimes as much as 40%, which becomes due at the end of the loan term. This structure makes your monthly payments more affordable. However, if you’re in an accident, your car is stolen, or its trade-in value is lower than expected, this can be challenging to pay off.
If you’re concerned about paying off the car, balloon payment insurance can help.
Think about the total cost of owning a car
Remember that the monthly premium is only around 50% of the cost of owning a car. You should also consider:
- Maintenance and service costs: New cars are attractive as they come with service plans. If you’re buying a secondhand car from a dealership, you may also be able to get a maintenance plan for the first few years. But once the service plan runs out, you’ll need to budget for annual maintenance costs. Be aware that the cost of spare parts is rising.
- Fuel and running costs: Globally, petrol and diesel costs are likely to stay high for some time. Choosing a lighter, more fuel-efficient car can give you extra cash back in the months ahead.
- Licensing: The dealership will add on-the-road fees to your invoice to cover expenses such as licensing, number plates, servicing, etc. After that, you’ll also need to cover an annual licence fee from your municipality
- Unexpected repairs and breakdowns: Every car owner faces unexpected expenses from time to time - and they usually happen at the worst time too. Having an emergency fund can help you get out of a tight spot. It’s also sensible to check whether your insurer offers 24-7 roadside assistance, as Santam does.
- Insurance: We’ve left this for last, but insurance should never be an afterthought. Comprehensive car insurance allows you to recover from unforeseen or unexpected losses quickly and smoothly. If you’re financing your car, comprehensive car insurance is usually required before the vehicle can be released from the dealership.
While some of these costs are regular and predictable - such as your insurance premium - others can take you by surprise. You can get ahead of the bill shock with a dedicated savings portion in your monthly budget. If your premium is too high to allow you to do this, you may need to consider a less expensive car that still meets your needs.
Do young drivers always pay more for car insurance?
If you’re just starting out, you may be worried about being penalised as a young driver. However, your insurance premium is tailored for your situation, and takes multiple factors into account, such as:
- Driving history
- Claims history
- Your location
- Vehicle type and value
- How you use your vehicle
It’s quite possible that you would pay less to insure your car than an older driver with the same make and model, because there are so many factors that insurers take into account.
For instance, if you drive short distances or regularly work from home, Santam’s SmartPark solution allows you to save 20% of your insurance premium when you drive less than 15 000km a year. You get rewarded for driving less, and you can stretch your budget even further.
Choose the right insurer for a hassle-free experience
Can’t wait to get your car keys? We know there’s nothing like the thrill of the open road.
That’s why, whether you’re planning a road trip or looking forward to a stress-free daily commute, Santam offers practical support throughout your journey. We have over 108 years of experience in providing insurance that’s good and proper. Contact us today for a comprehensive car insurance quote.