Good Joseph, a YouTuber who shares content on personal finance, has shared reasons why anyone earning a monthly salary of Sh100,000 should not purchase a car for personal use.
In a video, the content creator gave an example of a couple earning Sh90,000 who were forced to resell their car due to high expenses that left them with zero savings.
“I met a couple that earns almost Sh90,000, and after analyzing their expenditure, we concluded that they should not have purchased their car. After analysing their expenditure and income, the couple decided to sell their car,” he said.
Joseph noted that most people purchase cars on loans, which they have to service every month. He explained that anyone earning Sh100,000 per month would need around Sh30,000 per month for the loan, while rent, shopping, and groceries would take an upward of Sh40,000.
Additionally, the person in question would need to fuel the car as well as sort other bills, which can be financially strenuous.
“Be careful, keen, and cautious. Otherwise, don’t rush to buy a car on loan only to have it repossessed,” he advised.
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He, however, clarified that owning a car for business purposes would be a good financial move, as it would generate income rather than being solely used for commuting to work.
Experts advise aspiring car owners to purchase a car when fully prepared financially. Unlike buying land, which appreciates in a short time, a car is a liability. You will fuel it, service it, change its tyres, and replace parts, among other costs.
Additionally, a car loses approximately 10 percent of its value the moment you drive off the lot. If you’re financing an older car, the value goes down even faster, and you could end up with negative equity, a situation where the loan you owe is much more than the value of your car.
According to Money254, if you owe Sh900,000 on a vehicle currently worth Sh600,000, then you have Sh300,000 in negative equity. This situation mostly happens when you make zero or a small down payment, or your interest rates are too high.
With time, this negative equity becomes a problem when you lose your income and can no longer make payments, meaning you’ll not be able to repay the loan even if you sell your car.
