A car is arguably the second-biggest expenditure after housing but before basics like food, education, and saving for retirement.
This means that it's crucial to know and understand if this is the right time to make the purchase or not.
Getting it wrong has serious financial repercussions and the potential to lead one down a path of money woes that might be incredibly difficult to resolve.
In a bid to avoid the above, here's a look at 10 practical signs that could mean that getting that car right now could be the wrong move.
Read Also: 7 Reasons Why Getting a Car Might be a Good Idea
In the 90s and early 2000s, buying a car was a reserve for the elite or a form of reward after working a blue-collar job for decades.
However, millennials are now buying cars at a much earlier point in life, which gives them a platform to understand how money works differently than previous generations.
Left unchecked, the allure of a car may push an individual to purchase without properly examining their true financial status.
Getting a car worth Ksh600,000 only to be hit by a Ksh100,000 emergency that cannot be covered would not make any sense. Having a buffer (emergency fund) in place is crucial for anyone looking to enjoy relative stability financially.
Read Also: Easy Steps to Create an Emergency Fund in 100 Days
When it comes to figuring out a budget for a new car, the 20/4/10 rule is a good starting point.
According to the formula, you should put down 20% on a car, take out a four-year loan, and spend no more than 10% of your monthly income on transportation.
Car insurance, maintenance, fuel, and auto loan payments are all included in the 10% spent on transportation each month.
For example, if your annual income is Ksh500,000, your monthly budget should show you whether you have a surplus of Ksh50,000 (10%) to dedicate to an auto loan payment each month, as well as other transportation expenses.
If you fall short of this simple rule, it could be best to consider holding off on buying a car until later.
For those looking to pay cash upfront for a car, another car-buying rule of thumb suggests that you shouldn't spend more than 35% of your yearly income on a car. So, if you make Ksh1,000,000 a year, you shouldn't spend more than Ksh350,000 on a car.
Read Also: Buying Your First Car? 8 Things You Need to Learn Now
As mentioned at the very start, buying a car is a major financial undertaking. It would therefore be unwise to take on this expense while still handling another major one such as a mortgage.
Defaulting on one of the mandated monthly payments is a major possibility, under such a scenario.
Make sure you know what you're up against before you start budgeting for your car. When and how much money do you need? It is possible to adjust the timeline if large expenses like buying a home are already underway.
If buying a car is genuinely important for you, it would be smart to budget for it as a fixed expense, placing it alongside rent/mortgage, student loans, utilities, and above recreational spending.
This way, you can easily tell if adding the expenses attached to buying a car fits your current budget.
If it doesn’t and you still have ‘buying a car’ as a need, you could look into whether an additional source of income could make it possible. At the end of the day, any expense that adds to an already heavy monthly financial burden is a bad idea.
Read Also: What’s Better – Taking a Loan or Saving to Buy a Car?
This could be anything from a divorce, to a change in jobs, or anything else that directly impacts your revenue stream.
Using divorce as an example, potential legal fees and asset redistribution mean that one stands a high chance of running dry on cash.
Therefore one could argue that holding off on buying that car would be the right decision as it eliminates an avoidable expense.
Moving into a new job would also be a cause to pause on any major purchases, at least until you can have a long-term prediction of their income.
Read Also: 6 Financial Steps to Take When Making a Big Life Change
Living beyond your means, or beyond what you can afford to spend is a recipe for disaster.
If buying a car means draining your entire savings and even borrowing something extra to top it up, then it probably means such an expense should be avoided.
A healthy financial situation is one in which you can save money each month while maintaining a safety net for unforeseen expenses.
For example, living from paycheck to paycheck is one of the signs that one is living beyond their means. In such a scenario, it’d be better to look into ways to cut down on costs and boost your monthly savings. Or simply put, find a way to live beneath your means.
Set tangible saving goals and once the finances are in good health, then maybe you could then look into car financing deals that work for you.
Budgeting is one of the best ways to avoid living beyond your means. You can use this strategy to make sure you can cover essential expenses and save money without spending more than you earn.
Read Also: 10 Warning Signs You are Living Beyond Your Means
Making the leap from matatus and Ubers is thrilling and liberating — for many, it signifies the realisation of a lifelong dream, but one has to examine whether or not the car is needed in the first place.
A simple cost-benefit analysis model can be used to examine the financial ramifications of making the purchase.
For example, if you live in Nairobi and work in the Central Business District, getting a car to make the daily commute would not make economic sense.
The elaborate network of public transport within the Kenyan capital, coupled with extra costs such as daily parking fees and tips for guards translates into a huge financial burden at the end of each month.
This is why experts recommend a thorough examination of the real value of the car to any individual looking to buy one. If a real value cannot be derived then this could be the wrong time to get a car.
There are no specific and tangible needs for the car that can be identified therefore making such a major buy should be avoided.
Read Also: 7 Reasons Why Getting a Car Might be a Good Idea
Buying a car is a long-term commitment that demands a strong financial standing. It needs a predictable stream of revenue because cars consistently demand money to be poured in.
If car loan financing is the preferred route, then the evidence of one's monthly income weighs heavily among the factors that will determine whether or not one gets the actual loan.
Firms that offer car loan financing services in Kenya use an applicant's level of income as well as their credit score as key factors when it comes to deciding whether to lend or not.
Taking on an expense as heavy as buying a car almost always leads to a significant addition to the expenses column of your monthly budget.
Handling such an increase with irregular stream(s) of income could prove unwise. For example, failure to honor monthly loan repayments leads to steep penalties that could drug you even further and further into debt.
Read Also: 7 Ways to Budget and Thrive With an Irregular Income
If the main push to buy a car is to keep up with your circle of friends, then you probably need to re-examine your financial lifestyle.
Making any kind of purchase to fit in with the crowd is one of the quickest ways to end up broke, in debt, or both.
It is important to note that wanting to be liked by others is part of human DNA. Some research has shown that we are wired to constantly find a way to belong and to be socially accepted.
Some will buy that Toyota Prado because they want their peers, colleagues, friends, and family to respect them. To know that they have 'made it'.
Sadly, the human ego when combined with peer pressure and the infamous FOMO (Fear of Missing Out) could drive an individual to splurge and spend only to impress.
These pressures have been amplified even further in the current age of social media where you come across some of your friends living the 'soft life' daily.
There is nothing wrong with occasionally treating yourself to something. However, if you correctly set financial priorities, feel free to spend money on items you enjoy. Don't buy that car to impress your peers.
Read Also: Critical Dos and Don'ts of Managing Your Money
This specifically applies to anyone looking to buy a car on a loan as their preferred financing model.
Once you have settled on the car that best suits your needs and worked out a budget that won't send you into bankruptcy, identifying the best car loan financing deals is the next logical step.
This is where things can get confusing because once you key in 'best car loan financing deals Kenya' on Google, you'll be bombarded with a plethora of options.
From SACCOs to commercial banks, to car dealers, everyone has a deal that sends your mouth watering. However, combing through these options with a fine comb could be the key between getting a good deal, or getting yourself into a financial quagmire.
Some offers look so enticing to pass up, but sifting through them objectively and you are likely to find a clause hidden within the details that doesn't work within your financial plan.
When looking for the best deal, you should always be driven by the need to find one that is both affordable and meets your specific needs.
Buying a car is the easy part, maintaining it in optimum condition for the long run is where the main financial challenge lies.
Certain un-pronounced costs come with owning a car that need to be examined before making the purchase.
Some of these hidden costs of owning a car include; daily parking fees, maintenance costs such as weekly washes, unforeseen costs such as faulty headlights, stolen side mirrors, and regular service costs among others.
If the total estimated hidden costs compounded to cover a year goes beyond your current budget, or would require unplanned borrowing to cover, then it probably isn’t the right time to buy a car.
Read Also: The 7 Hidden Costs of Car Ownership in Kenya
So, the question now becomes ‘when is the right time to buy a car’?
In terms of time in its literal sense, most experts believe that the end of the year when salespeople are trying to meet their quotas is ideal.
On the other hand, buying a car at the right time depends on each individual's financial situation. Your budget and affordability are the two main factors you need to consider.
When it comes to purchasing a car, it is important to spend time researching. Carry out due diligence on local car dealers to scout out their offerings and see what incentives they might offer.
Absorb everything you can about your ideal car such as year, make and model, financing options, standard features, etc.
At the end of the day, the right time to buy a car is when you can genuinely afford to cover the costs that come with it.
Read Also: My First Car: Bitter Lessons From Skipping Due Diligence