One of the hassles of going to work is commuting.
While for some people, it is an opportunity for mindful meditation, others see it as a tiring, terrible daily experience.
Aside from waiting a couple of minutes for a jeepney or bus plus the actual travel time, you also have to consider waking up early to compensate the possible delays such as traffic jam, a road accident, and a mechanical failure of the vehicle.
As you reach the office, a realization hits that you have to go through the same frustrations on the next day.
The best idea you can think of to avoid the daily inconvenience of commuting is to purchase a car. No more long time of waiting for a vehicle, lesser time for traveling, and going to some places as a bonus.
You could also take your time having dinner outside or stopping by at your favorite coffee shop after office hours because you do not have to worry about the public vehicle timetables.
Sounds great, right?
Owning a car gives a lot of perks, but it may also mean giving up living in luxury or at least reducing the daily costs of living like a billionaire.
Of course, you do not want your neighbor to see your car being seized over failure to pay your monthly amortization.
So, if you are thinking about purchasing one, here are some calculations to come up with the right equation and finally answer the question – can I really afford a car?
Calculating Your Paycheck. Find Out If You Can Afford a Car
In the Philippines, there are lenders who do not require you to have a hundred thousand in your bank account to get a car loan.
In fact, even with a quite low salary, you can get approved with a monthly payment of at least P10,000 as a minimum. You can even own one without a down payment.
While there might be a chance that you really need to shell out money out of your pocket, other lenders require you to give 10% to 20% down payment, with having at least P30,000 to P50,000 monthly income.
Even so, loaning a car seems to be a walk in the park because it does not require you to go through a painstaking process.
However, after a month of owning the car through a loan, that is when you will feel the need to tighten your belt.
Before deciding on loaning a car given the salary requirement mentioned above, you have to repeatedly ask yourself:
“Can I really afford a car?”
To answer this question, let us do some math.
Of course, you have to be wise in choosing what car you are going to purchase based on your monthly wage. It is not wise to purchase Lexus LM worth more than P5M to P9M if you just have an average salary.
If your income is in the average salary grade, you might want to go for a more affordable car such as Toyota Vios (₱671,000 – ₱1.06 Million), Toyota Wigo (₱568,000 – ₱700,000), Honda Brio (₱601,000 – ₱735,000), or Suzuki Celerio (₱558,000 – ₱628,000) to name a few.
Let us say that you will purchase a Honda Brio RS Black Top CVT for P735,000, secure P147,000 as a 20% down payment for you to avoid a hefty monthly burden for its amortization. A big down payment and shorter payment terms save you a lot of money in the long run.
If you cannot afford a 20% down payment, there are car dealers who offer a much lower down payment. For instance, you can pay only a P38,000 down payment for Honda Brio RS Black Top CVT, with P15,901 monthly amortization for 60 months.
If you are going to compute, you have to pay P992,060, which hovers at a 34.97% interest rate for five years. That number is high, and you might want to think twice before going for lower down payments
If you want a less burdensome monthly amortization and justifiable car price but do not have a hundred thousand in your savings, there are banks to the rescue.
The basic requirements include an accomplished application form, at least 2 valid IDs, and proof of income. Do some research to know which bank offers the lowest interest rate and which one gives you the most convenient and flexible payment. If ever you get approved, loaning from a bank is a much wiser decision because they give a lower interest rate.
To simplify, you have to stick to 20/4/10 as the golden ratio for auto financing.
According to this rule of thumb in loaning a car, you should put down at least 20% as your initial payment, do not exceed 4-year terms, and should maintain your car amortization and other car expenses to a maximum of 10% monthly.
Through this, you are less likely to go through financial woes.
Dealing with Extras
Now that you have your car ready to park in your driveway, there is no assurance that you can totally sigh in relief because along with down payment and monthly amortization are the miscellaneous costs of owning a car.
You should also save for other regular costs such as fuel and maintenance, and be prepared for unexpected expenses such as malfunctioning car parts. Remember that the common mistake of car owners is only saving for the total cost of car purchase and not securing for the costs after buying it.
Here is your cheat sheet for common car expenses that you have to deal with.
Maintenance and Repairs. These expenses are inevitable because whether you like it or not, you have to treat your car like your own baby. Some maintenance requirements are oil change, tune-ups, car wash, and battery fluid. For repairs, you have to consider replacing worn out parts such as tires, belts and hoses, and other electrical components. It is much better to have a maintenance framework wherein all the most important maintenance and repairs are included so you can track your car expenses. You might also want to consider preventive maintenance to save you from more expensive repair costs in the future.
Annual Average Cost: P10,000 – P15,000
Fuel. Expenses on gas and fuel are the most common regular cost. Your fuel costs depend on where you are taking your car. If you are traveling for about 60 kilometers per day, you have to budget at least P700 a week. For a month, your total cost is P2,800. If you are going to think of it, you do not actually save much money from fare expenses, but your great edge is the convenience that your car brings you.
Annual Average Cost: P33,600
LTO Registration. Vehicle registration is another cost that you need to be prepared for most especially if you have a brand new car. For the initial year of registration, you need to fork up P5,000 to P7,000, yet the car insurance is not included in this amount. Once your registration expires, you need to renew it immediately because there is a weekly fine of P200.00.
Annual Average Cost: P5,000 – P7,000
Car Insurance. Comprehensive insurance coverage depends on the brand of your car. The average car insurance for the first year is about P25,000, which will depreciate in the latter years. This insurance covers other issues aside from collision. Although it is optional, it is much better to secure insurance for possible risks.
Annual Average Cost: P25,000
Loan Interest. Let us consider the computed loan interest for a car with a selling price of P735,000. Given that you will secure a lower initial payment instead of pitching up to a 20% down payment, you are more likely to shoulder a high-interest rate. For instance, the Honda Brio RS Black Top CVT pitched up to 34.97% interest for five years. That means you have to bear P51,412 annually for five years. However, there might be better options for you which give you a much lower interest rate depending on your agency. If you purchased with less than half of this computed interest, then it is a great relief on your part.
Annual Average Cost: P51,412
As you reach this part, you are probably having mental math and starting to weigh your decisions. After we have gone through the extra costs with a fine-tooth comb, ask yourself once again… “Can I really afford a car?”
As long as you are still not considering “NO” as an answer to this question, keep the wheels spinning towards the end of this article.
Total Cost of Owning a Car (Annually)
Looking into details of the actual cost is something that you must not overlook when thinking of purchasing a brand new car. The actual cost of buying it is just the least of all your worries because its maintenance and other miscellaneous expenses will force you to cut corners as much as possible. Now, what is the real cost of having your own car? Take a look at this table:
|Maintenance and Repairs||P10,000 – P15,000|
|Monthly Amortization (12 months)||P190,812|
|Total||P315,824 – 332,824|
Adding up the estimated annual cost of owning a car for five years is a whopping P332,824, and this amount must not make you live from hand to mouth. Remember, you got other bills to pay and other unforeseen spending. Of course, you do not want to go bankrupt or be slumped in a queer street.
So Can I Really Afford a Car?
Upon arriving at the annual total cost in a span of five years, another tough question pops out… “Would I be willing to spend five years of my life paying for that huge amount?” It might mean you need a five-year pause from living high off the hog.
For the final answer to the million-dollar question… “Can I really afford a car?”
Well, figure out the answer for yourself. You know your financial capability better than we do.
The bottom line here is that there is no wrong answer to this question, but I cannot guarantee that there is no wrong decision at all.