A very generous friend recently lent me his car for a road trip. It’s a thing of true beauty, with whistles on top of the bells. By the time I headed back from my holiday, I was looking at car prices online and trying to justify the purchase. For someone with a 17-year-old car, the prospect of new wheels is very tempting indeed. 

However, the cost of the car does not equal the cost of ownership. I made this mistake when I bought my first car, so I’m a bit smarter this time around. If you’re in the market for new wheels, consider the below list of costs to get to the true cost of ownership.

Tip: This excellent mental model looks at the cost of maintenance as a proxy for affordability.

• The sticker price is only the beginning

When looking at the cost of a car, the price quoted usually excludes the interest you’ll pay if you get car financing. As Simon Brown likes to point out, the value of your new car depreciates by 15% the minute you drive off the showroom floor. This alone is an excellent reason not to buy new.

Find out how to get to your actual cost, including VAT, here.

The interest rate you pay on car financing is significant and the repayment terms not nearly as flexible as a home loan. If at all possible, cash is king when it comes to buying cars.

Learn more about the true cost of debt here.

• Maintenance stacks up

Most new cars include a maintenance plan up to a certain number of years or kilometres. After that, routine maintenance as well as repairs are for your own pocket. 

Before committing to new wheels, phone a dealership to ask for quotes on out-of-maintenance services and repairs. Most drivers can expect to do at least one major service per year. The cost of a major service needs to be added to the cost of your annual payments to get a clearer picture of the cost of ownership.

Divide the cost of a major service by 12 and add it to your monthly repayments. 

• Wheels are not a joke

I once heard most BMW X5s are sold because the owners can’t afford to replace the wheels. I’m not sure whether that’s true, but I wouldn’t be surprised. Going from replacing all four tyres for R1,600 to paying R5,000 for one tyre will be an adjustment. Before buying a car, get a quote on replacing all four tyres, divide by 24 (because you’re not likely to replace all four every year) and add to the monthly fees above. 

• Insurance is a car cost

Resist the temptation to lump insurance together. Even if your insurance policy provides motor cover in addition to your household cover, the cost of insuring your car is high. The more expensive your car, the higher the cost. Add that to your monthly amount too.

• Don’t forget fuel and oil!

Once you have the car, you’re probably hoping to use it. To do that requires fuel and oil. If you’re lucky, you need only one full tank of fuel per month. Most drivers need more. 

Cost per litre is a great metric to choose a fuel-efficient car. To calculate the number of kilometres one litre of petrol gets you, divide the number of kilometres you can drive on a full tank by the number of litres of petrol you put in. 

If you’re replacing an old car, a comparison of fuel consumption will go a long way to help you work out if you’re making a good decision.

Monthly repayments are the wrong metric

When you start to add the costs of maintenance, insurance, petrol and wheels to the monthly car repayments, you get a little closer to the true costs of owning a car. Tempting though it may be to buy a pretty car you can barely afford, remind yourself that you need to eat too. 

Many of us avoid making financial decisions because we worry that we can’t do the maths. Luckily, there are only a few formulas you need to understand to make a good financial choices. This series of articles is dedicated to helping you understand how to do the calculations for yourself. Once you grasp these simple formulas, you can make better financial choices on the fly.