How to Budget for your Car

PK Umashankar (By Invitation)

Money isn’t everything but it sure does help when you want to buy a car. So, unless a long-lost great uncle has left you a small fortune, the first question most of us need to ask before shopping for a new car is: “What can I afford to drive?”

Estimate Cost of Ownership

But your answer needs to take into account more than just the purchase price of the vehicle. The price of the car, we’re afraid, is just the tip of the motoring iceberg. The costs of financing, maintaining, repairing and insuring your car – along with incidental expenses such as parking and registration fees – also need to be factored in. Together, these are what forms the Cost of Ownership of your car, and as a matter of fact, it is this that will affect your purchase decision since these are the costs that determine whether you’ll be able to afford to own a particular vehicle over a period of time.

Of course, most guys can’t wait to cruise the roads in a flashy new sedan or an SUV. After all, they do have a certain image to maintain. But, for most first-time buyers, the more affordable hatchback or compact sedans such as Ford Classic/Toyota Etios are more realistic choices. And the really terrific news is the fact that some of these are still fun cars to drive – you really don’t need to spend a small fortune in order to have a cool, hip motoring experience. It all boils down to what you can afford. Here’s how you can ensure that you aren’t over stretching your earnings to get yourself that cool set of wheels. 

Cheapest does not equal the lowest cost of ownership

A word of caution here however, for you shouldn’t automatically sign a cheque for the cheapest vehicle. That doesn’t necessarily guarantee that you will end up with a car that you will love to own. What you need to look for is value for the money that you pay. And this is where the low Cost of Ownership that certain vehicles offer comes into play.

The buyer should select a car which has low fuel consumption, is easy to repair and fits into the value for money proposition. The buyer needs to earmark a budget that he or she is willing to shell out every month towards the EMI payment, which should not exceed 12 to 15 percent of his or her monthly income.

Estimate running costs

How much fuel your car will consume is also an important budget consideration. Estimate the average distance travelled each month, and divide this by the car’s estimated fuel economy to figure out how many litres of petrol you will be using each month. Multiply this by the cost of petrol per litre to get to your average monthly fuel costs. Don’t forget to allow for future price increases at the pump – or you could run out of money before you run out of fuel!

Estimate maintenance cost

When estimating the cost of owning a new car, repairs and maintenance also come into play. Typically, some cars are easier and less expensive to repair than others. For instance, at Ford we use a highly effective Child Parts Strategy that allows us to manufacture vehicles that are easy to repair. Basically, the Child Parts Strategy allows us to make key vehicle components so that in case the component malfunctions only the malfunctioning part needs to be replaced rather than the entire component. This not only makes it easier to repair but is also a less expensive repair method. For example, in case of a dent on the car, can get the skin replaced rather than going through the costly exercise of getting the entire door replaced? So do find out as much as you can about the vehicle you’re interested in.

Once you’ve chosen the model and brand that tickles your fancy, it’s a good idea to gauge the reliability of the target vehicle. Information about what types of repairs a specific model is likely to need over time is available online and with consumer groups, as well as data about consumer complaints. Facebook fan pages exist for many new vehicles, and lots of helpful information, from both current owners and the manufacturer, can be found there. Even the most reliable cars on the market need periodic maintenance and repairs. Tyres, filters, fluids and belts need to be replaced regularly.

Check if the manufacturer offers attractive schemes on after sales service

It’s also advisable to find out if the manufacturer offers value added cost saving options like extended warranty. Certain companies, for example, in addition to offering Extended Warranty to customers, offer additional cost saving schemes such as a Scheduled Service Plan wherein the customer can potentially save more.

Check for deals and the best financing options

But most car-buyers only have enough money saved for a down payment and will need some sort of financing plan to complete the sale. Dealer finance is often the most convenient and popular option. At reputable dealerships, the staff will sit down with the customer and tailor a payment plan to meet their individual needs, after calculating monthly income, household expenses, mortgage payments, and food and entertainment expenditures.

The dealership can adjust the amount you must pay each month, or the number of payments you have to make over the lifetime of the contract, depending on the buyer’s financial situation. Keep in mind that lower monthly payments mean you’ll be paying off the car for a longer period of time, and more of your hard-earned money will be going towards the interest. And remember that interest rates rise and fall. Rising interest rates could affect the terms of your car repayment, along with other debts like a home loan or credit card. In certain instances, you can fix the interest rate (this means that it will neither increase nor decrease, so you know exactly what you will be spending for the entire duration of the finance plan). Also, look out for schemes and special events that manufacturers run from time to time.

Once you’ve done your research work and have all the material regarding the Cost of Ownership of the vehicle you intend to buy then you can sit and work out which vehicle you will be able to afford and be happy with over a long term. Happy buying!

PK Umashankar is Vice President- Customer Service Operations at Ford India