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Can you afford your dream car if petrol prices hit R30-R40/litre this year?

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With global inflation and the war in Ukraine stoking higher oil prices, South Africans are facing record fuel prices. Though it’s hard to know where it will end, some analysts say that a petrol price of R40 per litre is not inconceivable in an extreme scenario.

With global inflation and the war in Ukraine stoking higher oil prices, South Africans are facing record fuel prices. Though it’s hard to know where it will end, some analysts say that a petrol price of R40 per litre is not inconceivable in an extreme scenario. File Image: IOL

WITH global inflation and the war in Ukraine stoking higher oil prices, South Africans are facing record fuel prices. Though it’s hard to know where it will end, some analysts say that a petrol price of R40 per litre is not inconceivable in an extreme scenario. Given that fuel is one of the biggest running expenses for your motor vehicle, drivers should consider fuel efficiency and costs when deciding which car to buy or even whether to retain their existing vehicle, says Ernest North, co-founder of the fully digital Naked Insurance platform.

“With the South African Reserve Bank expected to raise interest rates several times during the year and fuel prices on the rise, people should be thinking carefully about how this will affect the affordability of the car they’d like to buy,” says North. “As a simple example, if you drive a car with a fuel efficiency of around 20 kilometres to a litre and drive an average of 1000 kilometres per month, your petrol cost will rise from R2,160 per month to R2,500 if the petrol price hits R25. We encourage car owners to consider their unique scenario of car ownership cost, based on their actual car financing and monthly travel details.”

For example, here’s the monthly cost for an average 28-year-old in Gauteng owning a 2021 VW Polo 1.4 at different petrol price points. The calculations include instalments, insurance, fuel, and basic maintenance, based on the assumption they paid R229,000 for the car with a deposit of R40,000.

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“As you can see, for someone who drives more than 1,000 kilometres a month in a modest and relatively fuel-efficient sedan, even an increase from today’s R21.60 per litre to R25 per litre can push the cost of ownership up by 8-9%. The costs would look even worse for someone driving an older SUV or 4X4. As such, anyone on a tight budget should certainly leave a few thousand rand in slack for further fuel increases in the year ahead.”

North adds that South Africans have enjoyed relatively low interest rates because of the actions from the South African Reserve Bank (SARB) to keep the economy going since the Covid-19 pandemic started. But with inflation rising around the world, the South African Reserve Bank increased interest rates to 4% in January, and is expected to hike interest rates by at least another 1.25 percentage points this year. Consumers should also take this into account if they plan to buy a car on a financing plan this year, he adds.

North said, “The bad news is that it’s not just fuel prices and interest rates that are likely to rise – in the current inflationary environment, we may see insurance, maintenance and repair costs climb steeply too. For now, most electric vehicles are not a viable alternative for anyone but the wealthiest South Africans because of their high upfront costs, and there is also a limited range of hybrid vehicles.

However, that may change within the next few years. In the interim, I’d advise car owners to investigate the fuel efficiency of any vehicle they’d like to buy, and leave a comfortable cushion in their budget to accommodate rising costs.”

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