Spending R10,000 per month on a new car – Forget about that 3-Series and C-Class

Spending R10,000 of your after-tax salary per month on a new car sounds like a one-way ticket to driving a luxury sedan.

It is not.

If you would like to own a high-end vehicle on this budget, you should go straight to the used-car section of your favourite dealer’s website.

While you sacrifice the smell of new leather and getting to be the person who puts the first 1,000km on the odometer, you are more likely to land your dream ride by going this route.

The numbers

The foundation of this argument is based on a bit of maths and advice from finance providers.

It is generally recommended that you do not buy a car which is more than 30% of your annual gross salary.

Another guideline is not to spend more than 20% of your gross monthly income on financing a car.

Your gross income is what you earn before tax and other deductions.

This means that if you earn R50,000 per month, you should not spend more than R10,000 financing a car.

The financing allocation does not take insurance and fuel into account, however, which means you will be paying even more at the end of the month on your car’s total bill.

Insurance on a high-end sedan can easily cost you several thousand rand per month – while petrol will, depending on how far and fast you drive, come in at a similar amount.

The new cars you can afford

To see what R10,000 per month in finance payments will get you, we used the following scenario.

• You take out car financing over 60 months (5 years)
• The interest rate of the agreement is 9%
• You put down a 10% deposit
• There is no balloon payment

At R10,000 per month, this let’s you buy a car with a price tag of R530,000.

This gives you access to several great cars, including:

• Audi A3 Sportback 30TFSI
• Nissan X-Trail 2.5 4×4 Acenta
• Subaru XV 2.0i-S ES
• VW Tiguan 1.4TSI Trendline
• Toyota Hilux 2.4GD-6 DC Raider Auto
• Honda Civic Sedan 1.5T Sport
• Ford Ranger 2.2TDCi DC 4×4 XL

By comparison, if you wanted to own one of the three great sedans of our time, you will need to pay a bit more.

Using the same financing scenario as above, this is how much you would pay to own a new BMW 3-Series, Mercedes-Benz C-Class, or Audi A4.

• BMW 318i – R13,125 per month (R697,524)
• Audi A4 35TFSI – R12,125 per month (R644,000)
• Mercedes-Benz C180 – R13,605 per month (R723,360)

After-tax spend

When looking at a R10,000-per-month car payment, using your gross salary as a guideline can be somewhat misleading.

While R10,000 is 20% of a R50,000 gross salary, it is a much higher percentage of what you actually get paid into your bank account.

Using income tax rates for South Africa’s 2021 tax year, a R50,000 salary sees you getting paid R37,625 after tax.

This means your monthly car payment is in fact 27% of what you earn per month.

If you factor in car insurance and petrol expenses, you are spending even more.

As an example: car insurance at R1,500 per month and petrol expenses at R1,500 per month sees you spending R13,000 per month on you car.

This works out to 35% of your after-tax salary.