So you have your first job and you want a car, you find one that is retailing at about 600,000 bob and you think that it’s a fair deal. Hold up, what will it really cost you for say, six years?
- A Ksh. 600,000 loan: Let’s assume you don’t have the money just lying around. You are earning a couple of thousands a month. The bank will probably give you the loan after processing your papers. Let’s assume you get the best deal, 22% reducing balance interest over a period of 6 years. You’ll be paying about Ksh.15,075 per month. At the end of the period you would have paid out a whooping Ksh. 1,085,448.96 with Ksh. 485,448.96 of that being interest.
- Fuel: With the current pump prices at 117.67, the mileage of a vitz at 16km/l and the average distance travelled per driver in a day being 46.67 kms (29 miles) then it means that you will spend about Ksh. 751,670.81 in fuel over the six year period it will take you to finish paying your loan.
- The average premium for a car valued at Ksh. 600,000 is 7.5% of this value, translating to Ksh. 45,000 per year. This premium is subject to reduction by a certain percentage every year if no claims are made in the year. The math then adds up to 270,000 over the six years.
- Servicing: You are meant to service a car every 5000 km. assuming the average rate above, you will be servicing the car every 108 days. Meaning that you will service your car 20 times in the six year period. A regular servicing costs Ksh. 5,000. This translates into Ksh. 100,000.
- Replacements and repairs: You will also need to replace your shocks, spark plugs, fix a dent here or there, so let’s throw in an extra Ksh. 70,000 over the six years for that.
The calculations above are all on the lower end. Even though working them out it comes up to Ksh. 2,277,119.77 and the odds are by the time 6 years are up you will be thinking about buying a better car.
UPDATE: 08/07/2012: Grammar error fixed in paragraph one.