How Much Should You Really Spend on Your First Car? A Budgeting Guide for New Buyers

That shiny new Mercedes-Benz GLE might catch your eye every time you pass the showroom on Mombasa Road, but let’s be honest – unless you’re in the “wash wash” business or swimming in old money your papa left you, your first car probably shouldn’t cost as much as a small apartment in Kilimani.

Of course, there is the age-old advice that you should spend no more than 20% of your annual income on a car. Well, this isn’t exactly helpful when you’re fresh out of college and your annual income barely covers your Netflix streaming subscriptions, is it? 

Welcome to the real talk about car budgeting in Kenya. In this guide, Peach Cars will help you navigate the thin line between your dreams and your wallet’s reality. 

Trust this, your future self will thank you for reading this before making what could be the second biggest investment of your life (after that piece of land your mother keeps insisting you should buy).

The Real Math Behind Car Affordability

The easiest way to own a car is if you have the cash to pay upfront. At least, the only stress youw ill have to deal with here is the little research on your actual needs, the type and the model of vehicle you want. 

Keep in mind, however, that depending on the make, model, and features, a new car might set you back anywhere from Ksh 1 million to above Ksh 20 million. 

Used cars, on the other hand, can be significantly more affordable. You could spend anywhere from Ksh 200,000 to Ksh 5 million depending on the car’s condition and mileage.

But what to do if you don’t have all the cash?

Simple – follow the 20/4/10 financing rule. This is a tried-and-true budgeting formula that will work for you. You may not be earning over a million in a year, but with this formula, and a few sacrifices za kutopiga sherehe kila Friday, you will be well on your way to owning your first vehicle!

The 20/4/10 rule gives you a framework for deciding how much you can afford without sacrificing other financial responsibilities. 

Here’s how it breaks down:

1. 20% Down Payment
   Put down at least 20% of the car’s purchase price. This upfront payment reduces your loan amount and shows lenders that you’re committed. Plus, it’ll make your monthly installments more manageable.
2. 4-Year Loan Term
   Finance the car for no more than four years. Peach Cars, for example, has partnered with reputable financing companies like Equity Bank, for instance, which offers flexible financing plans tailored to your needs. This allows you to comfortably pay off your car without the weight of long-term debt. It is important to finance your car over a shorter of not more than 4 years – this means less interest in the long run.
3. 10% of Your Monthly Income
   Your monthly car payment should not exceed 10% of your gross income. If your income is Ksh 100,000, for example, your car payment should be no more than Ksh 10,000. This ensures that your car costs don’t drain your monthly budget, leaving you cash-strapped for essentials.

Sounds easy, right?

Maybe. Maybe not. What you have to remember is that the 20/4/10 rule can help guide your purchase decision, but ultimately, your lifestyle and financial goals should drive the final number. Here’s a quick example to help you work it out:

If your monthly income is Ksh 100,000, aim to keep your monthly car payment around Ksh 10,000. Let’s say you want to finance a car for four years (48 months) and plan to put down 20%. In this case:

• Car Price: Ksh 600,000 (a reasonable price point for a solid used car)
• Down Payment (20%): Ksh 120,000
• Loan Amount: Ksh 480,000

Estimating the Total Cost of Ownership

When budgeting for a car, remember that the purchase price is only part of the equation. Owning a car means dealing with ongoing expenses that can add up fast if you’re not prepared. Here’s a breakdown of hidden costs to include in your budget:

1. Insurance Costs
   Car insurance is a legal requirement in Kenya. Third-party insurance is the minimum, covering damage to other vehicles but not yours. Comprehensive insurance, which covers theft, fire, and accidental damage, will cost more but gives better peace of mind. Expect annual insurance premiums ranging from Ksh 30,000 for basic coverage on a small car, to around Ksh 140,000 for a higher-end SUV.
2. Maintenance and Repairs
   Routine maintenance is essential to keep your car running smoothly. Minor services like oil changes and tire rotations will cost anywhere between Ksh 3,000 and Ksh 7,000, while major services can set you back up to Ksh 12,000. Used cars, in particular, often need extra attention, from tire changes to replacement of worn-out parts. Regular maintenance isn’t something you want to skimp on—it’s what keeps you from dealing with costly breakdowns.
3. Fuel Costs
   Fuel expenses will depend on your car’s fuel efficiency and your driving habits. While you may be tempted to go for a large engine SUV, keep in mind that fuel prices fluctuate, and larger cars tend to guzzle more fuel. To save on fuel costs, choose a car with good fuel economy, especially if you drive long distances regularly.
4. Registration and Taxes
   Registering your car and paying applicable taxes can also add to your initial costs. For new cars, there’s typically a customs duty of about 25% of the car’s value, while registration costs vary depending on the type of vehicle and its engine capacity.
5. Depreciation
   This hidden cost often goes overlooked but plays a significant role in your car’s resale value. Depreciation is most noticeable with new cars, but used cars also lose value over time. If you plan to sell or trade in your car in the future, choosing a make and model that retains its value will help you recoup some of your initial investment.

Setting a Realistic Price Limit Based on Income

With a financing rate from Peach Cars, your monthly payment should be manageable within the 10% income limit, allowing you to enjoy the car without financial strain. If this amount is beyond your budget, consider lowering your target price or opting for a less expensive model.

Don’t Forget to Plan for Emergencies

Car ownership is full of surprises, from unexpected repairs to rising fuel costs. It’s wise to set aside a small fund for emergencies. Aim to keep at least Ksh 30,000 to Ksh 50,000 in an emergency fund specifically for car-related expenses. This way, if you need new tires or sudden repairs, you won’t have to scramble for cash.

Balancing Wants vs. Needs

The car of your dreams might be a sleek sedan or a rugged SUV, but remember that dreams don’t pay the bills. When setting your budget, balance your desires with practical needs. Ask yourself:

• Will this car serve my daily commute or lifestyle needs?
• Does it have the essential features I need without unnecessary add-ons?
• Can I comfortably afford it without compromising other financial goals?

A realistic budget reflects what you truly need, not just what looks good in the driveway.

Final Thoughts: Spend Smart, Drive Happy

Owning your first car is a huge milestone, and with the right budgeting strategy, you can afford a car that doesn’t leave you financially stressed. By sticking to the 20/4/10 rule, accounting for hidden costs, and prioritizing what you need over flashy extras, you’ll set yourself up for a smoother car ownership experience.Ready to take the plunge? Peach Cars offers financing options, car inspections, and a range of new and used vehicles that make it easier to stay within budget. Visit Peach Cars today and take your first step toward affordable car ownership in Kenya.