Investment Hacks: Here is how to buy a car in Cash, without taking a loan from the bank!

Faith Wangari

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This forum is aimed at cultivating the saving culture in members and teaching us that LESS is MORE!! In Kiswahili, they say "Kidogo Kidogo hujaza Kibaba. Saving is a culture that you need to practice and keep practicing until you perfect. In Super Savers Forum (SSF), you will be able to Learn, Earn, Save and Share the experience with others. In the spirit of saving, we will explore how you can buy a car without taking a bank loan or any kind of loan, be it a Sacoo loan or whatever.

How to buy a car in cash in Kenya!

Many people buy cars on loan; few people can walk into a showroom and pay cash for a car. However, like any other financial goal, if you start saving early, even before you start thinking of buying a car, then you can make it to buy a car without taking a loan.

As with any other savings goal, the trick is to anticipate the things you want to buy in the future and start saving for them early enough, even before you need them. The problem for most people is that they will work for five to six years, then wake up one morning and decide, “I have worked for long enough and I am now earning slightly more money, so now I need a car to prove that I have made it.” (Or for whatever reason). When such a person checks his or her finances, s/he finds that s/he cannot afford to pay cash for a car, but s/he can afford to pay the monthly repayments for a car loan.



Scenario 1: BUYING A CAR USING A CAR LOAN

So say you wanted to buy a car worth Sh600, 000 and you want a loan. First of all, most banks don’t offer full financing; they will give you something like 90% i.e. Sh540, 000, then you raise the Sh60, 000. In the old regime, before the Banking Act was amended to put a cap on interest rates, you would get a car loan for say 18% payable in between 48 to 60 months (4 to 5 years).



If you take the Sh540, 000 at 18% for 60 months (5 years), you’d be required to pay about Sh13, 712.46 to the bank every month (I haven’t included other fees such as loan insurance, etc, associated with loans). Affordable, right? Let’s see.

At the end of the 60 months, you will have paid back Sh822, 747.60 for a car worth Sh600, 000 and by the time you have finished paying your loan, the car will be worth less. Cars may lose between 10 to 40 percent of their value every year depending on mileage, model replacement cycle, how well they are maintained, fuel efficiency, etc. So your Sh600, 000 car today (which you will pay Sh822, 747.60 for) might fetch as little as Sh300, 000 in five years depending on a variety of factors.

What if you took an Sh540, 000 car loan at 18% for 48 months (4 years)? You’d be required to pay about Sh15, 862.50 per month. At the end of the four years, you will have paid back Sh761, 400 for a car worth Sh600, 000. Though the good thing is that by paying it faster, you pay much less.



The tables below show you how much you would pay for a car worth Sh600, 000 having taken a loan of Sh540, 000 (90% financing) at the old rates (about 18%), and the next table shows how much you’d pay for the car loan under the new more favorable rate of 14.5%.



Note that the faster you pay your loan, the less interest you pay. So for instance, a person who took a loan of Sh540, 000 at 18% and paid in 60 months will end up paying Sh882, 747.60 for the car, while a person who took the same loan and paid within 12 months will have paid Sh654, 086.40. A difference of Sh228, 661.20, meaning that the person who takes five years to repay the loan will pay Sh228, 661.20 more than another person who took the same loan at the same rate, but repaid within 12 months.


Cost of car Car loan amount
(principal)
Interest rate Monthly repayment Repayment period (months) Total amount paid to bank Total interest paid (extra added to cash price to buy car on loan) Total amount paid for car (loan + interest + 60K out of pocket
Sh600, 000Sh540, 00018%Sh13, 712.46 60 (5 years)Sh822, 747.60 Sh282, 747.60Sh882, 747.60
Sh600, 000Sh540, 00018%Sh15, 862.50 48 (4 years)Sh761, 400 Sh221, 400Sh821, 400
Sh600, 000Sh540, 00018%Sh19, 522.30 36 (3 years)Sh702, 802. 80 Sh162, 802.80Sh762, 802.60
Sh600, 000Sh540, 00018%Sh26, 859.02 24 (2 years)Sh647, 016.48 Sh107, 016.48Sh707, 016.48
Sh600, 000Sh540, 00018%Sh49, 507.20 12 (1 year)Sh594, 086.40 Sh54,086.40Sh654, 086.40

With new interest rates currently capped at 14.5%


Cost of car Car loan amount
(principal)
Interest rate Monthly repayment Repayment period (months) Total amount paid to bank Total interest paid (extra added to cash price to buy car on loan) Total amount paid for car (loan + interest + 60K out of pocket)
Sh600, 000Sh540, 00014.5%Sh12, 705.28 60 (5 years)Sh762, 316.80 Sh222, 316.80Sh822, 316.80
Sh600, 000Sh540, 00014.5%Sh14, 892.10 48 (4 years)Sh714, 820.80 Sh174, 820.80Sh774, 820.80
Sh600, 000Sh540, 00014.5%Sh18, 587.33 36 (3 years)Sh669, 143.88 Sh149, 143.88Sh729, 143.88
Sh600, 000Sh540, 00014.5%Sh26, 054.70 24 (2 years)Sh625, 312.80 Sh85, 312.80Sh625, 312.80
Sh600, 000Sh540, 00014.5%Sh48, 612.18 12 (1 year)Sh583, 346.16 Sh43,346.16Sh643, 346.16

*** NOTE: These are hypothetical figures and they may vary from the actual figures applicable to you. Any errors, inaccuracies, and omissions are not intentional and if spotted, will be corrected.


Scenario 2: BUYING A CAR IN CASH IN KENYA
How about if you want to pay cash for that Mazda Demio worth Sh600, 000?


Perhaps you are 23 to 25 years old, just graduated from college and started on your first job or business, still living at home with minimal expenses. Perhaps you earn Sh40, 000 net after paying tax and the mandatory deductions (NHIF, NSSF, HELB Loan, Sacco, retirement fund, welfare, medical insurance, etc). You spend Sh4, 000 on tithe (could be more depending on your gross salary), Sh3000 on fare, Sh3000 on lunch, Sh1000 Airtel Unliminet bundle (calls/SMS/data), Sh2, 000 on personal effects and contribute Sh5, 000 to help your parents buy food or utilities. That’s Sh18, 000. You are left with Sh22, 000, which you can channel to different savings goals.


Say one of your goals is to buy a car by the time you get to 30, and you decide that out of the Sh22, 000 you are directing to savings, you will dedicate Sh10, 000 per month to a money market fund earning an average of 11% per year. In five years, you will have Sh791, 155.02. Even if the car you wanted is now worth 800, 000, you’ll probably be able to add the extra Sh8, 844.98 and buy your car cash comfortably. Remember within those five years, if you are really good at what you do and you get enough opportunities, your earning power might have increased such that even though by then you have moved out of your parent’s house and are taking care of all your bills, you will be able to save much more than the Sh10, 000 per month. Also, sometimes the fluctuating interest rates could go as high as 18% depending on the performance of the markets, meaning that you could get to your goal faster.


Remember even as you channel the Sh10, 000 to the money market fund opened specifically for the car savings goal, you still have Sh12, 000 to channel to other goals. For example, maybe you are giving yourself two to three years to move out of your parents’ house, so you open another money market fund in which you channel Sh5, 000 each month and by the third year you have Sh212, 283.53 to pay deposit, reasonable rent and buy a few essential household goods to start with. And then the extra Sh7, 000 could go to other goals like Sacco shares and savings, etc.


This is a case of planning ahead when you still don’t have much responsibility, so you maximize that advantage by anticipating future goals and starting to save for them early. A 25-year-old who is lucky enough to have Sh22, 000 to save every month and decides to save Sh10, 000 every month for a car he/she will buy on his/her 30th birthday, will be in a totally different place from his/her age-mate who spends all his/her extra Sh22, 000 on clothes, booze, entertainment, and other things and then at 30 decides he/she needs a car. The one who started saving at 25 will be able to buy his/her car cash, while the one who never saved but realized they need a car at 30, will have to rely on a car loan and pay about 50% more for his/her car than the one who started saving early.


If you are blessed to have a relatively good job with little financial responsibility, take advantage of this time when you have no financial obligations to plan for your future i.e. start working on your mid- to long-term goals today. You will thank yourself later for it.


Even if you have the responsibility, make saving a habit from early on. Every time you get money, even if it is not a regular income, cut 10% to 30% of it and put it in savings and then spend the rest after saving. A person who saves Sh1000 a month, is better off than one who saves nothing at all. And the good thing about saving beforehand is that even though you do decide to take a loan to help you buy a car, you will take only a small percentage (as you’ll have saved the larger percentage of the cost of the car), and so you will be able to pay off the “small” loan faster and thus pay less interest.


And now to end, here’s a table showing how much you would save if you contributed the loan repayment amounts to a money market fund so that instead of using them to pay loans, you are accumulating that money to buy car cash in five years.


Saving in a money market fund at 11% for 5 years:

Monthly contribution Interest Saving period
60 months
Interest earned Total principal saved Total after 5 years
(principal + interest)
September 2021
Sh12, 705.28 11%5 yearsSh242, 867.81Sh762, 316. 80Sh1, 005,184.61
Sh13, 712.46 11%5 yearsSh262, 120.56Sh822, 747.60Sh1, 084, 868.16
Sh14, 892.10 11%5 yearsSh284, 669.97Sh893, 526.00Sh1, 178, 195.97
Sh15, 862.50 11%5 yearsSh303, 219.65Sh951, 750.00Sh1, 254, 969.65
Sh18,587.33 11%5 yearsSh355, 306.15Sh1, 115, 239.80Sh1, 470, 545.95
Sh19, 522.30 11%5 yearsSh373, 178.00Sh1, 171, 338.00Sh1,544,516.57


*These are just hypothetical figures; interest rates vary from year to year and sometimes from month to month, but the money market tends to have an interest rate of about 10% on average (can go slightly higher or lower). The higher the amount you save, the faster you can accomplish your goal.
 
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Wales Kim

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The 2 most expensive things you are likely to buy is a house/plot and a car.
You will probably buy a few houses/plots in your life, but they will tend to go up in value, and since they go up in value you will make money with them. You will likely have many cars in your life, and you will lose every penny you ever spend on a car. If you buy a car for Ksh3,000,000 you will sell it in 5 years for 1,200,000. You just lost 1,800,000. You will repeat this a lot in your lifetime and you will lose every time you buy a car.

The best thing to do is spend as little as you possibly can in a car! The other side to this is the car loan, many car loans have very long terms these days, sure the rates can be low but if you are broke you will likely pay 18+% on any car loan that you get. So not only are you going to lose money on the car you are paying the bank for the privilege of losing money.

The best thing to do is to buy a car with cash or make sure you can pay it off very quickly. Keep that car and just repair it.
Most people like to use lots of excuses:
  • The paint is bad
  • It will need a new timing chain/transmission soon
  • It needs a lot of work
  • I deserve a new car
  • I want something safe
  • We need more room
  • I can’t go on a long trip with this car.
Sure there are times when you may need to change cars, new children, starting a business or whatever. But you can keep repairing cars for a long time. Don’t let a repair of 30,000 “make” you spend 200,000! Because guess what! By the time that new car needs the same repair, the old car will need the same repair! So you are only delaying repairs, constantly.

If you do need to buy a car, it’s best to buy a 3–to a 5-year-old car with cash, a few times as you can. If you were really smart, you would invest 40.000 a month, the same as that car payment would have cost you.
 

Maureen Mulei

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The 2 most expensive things you are likely to buy is a house/plot and a car.
You will probably buy a few houses/plots in your life, but they will tend to go up in value, and since they go up in value you will make money with them. You will likely have many cars in your life, and you will lose every penny you ever spend on a car. If you buy a car for Ksh3,000,000 you will sell it in 5 years for 1,200,000. You just lost 1,800,000. You will repeat this a lot in your lifetime and you will lose every time you buy a car.

The best thing to do is spend as little as you possibly can in a car! The other side to this is the car loan, many car loans have very long terms these days, sure the rates can be low but if you are broke you will likely pay 18+% on any car loan that you get. So not only are you going to lose money on the car you are paying the bank for the privilege of losing money.

The best thing to do is to buy a car with cash or make sure you can pay it off very quickly. Keep that car and just repair it.
Most people like to use lots of excuses:
  • The paint is bad
  • It will need a new timing chain/transmission soon
  • It needs a lot of work
  • I deserve a new car
  • I want something safe
  • We need more room
  • I can’t go on a long trip with this car.
Sure there are times when you may need to change cars, new children, starting a business or whatever. But you can keep repairing cars for a long time. Don’t let a repair of 30,000 “make” you spend 200,000! Because guess what! By the time that new car needs the same repair, the old car will need the same repair! So you are only delaying repairs, constantly.

If you do need to buy a car, it’s best to buy a 3–to a 5-year-old car with cash, a few times as you can. If you were really smart, you would invest 40.000 a month, the same as that car payment would have cost you.
The benefits that come from the same car not included the profits the car brought in not factored i call this financial advise of yours
 

Macharia Njoroge

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The 2 most expensive things you are likely to buy is a house/plot and a car.
You will probably buy a few houses/plots in your life, but they will tend to go up in value, and since they go up in value you will make money with them. You will likely have many cars in your life, and you will lose every penny you ever spend on a car. If you buy a car for Ksh3,000,000 you will sell it in 5 years for 1,200,000. You just lost 1,800,000. You will repeat this a lot in your lifetime and you will lose every time you buy a car.

The best thing to do is spend as little as you possibly can in a car! The other side to this is the car loan, many car loans have very long terms these days, sure the rates can be low but if you are broke you will likely pay 18+% on any car loan that you get. So not only are you going to lose money on the car you are paying the bank for the privilege of losing money.

The best thing to do is to buy a car with cash or make sure you can pay it off very quickly. Keep that car and just repair it.
Most people like to use lots of excuses:
  • The paint is bad
  • It will need a new timing chain/transmission soon
  • It needs a lot of work
  • I deserve a new car
  • I want something safe
  • We need more room
  • I can’t go on a long trip with this car.
Sure there are times when you may need to change cars, new children, starting a business or whatever. But you can keep repairing cars for a long time. Don’t let a repair of 30,000 “make” you spend 200,000! Because guess what! By the time that new car needs the same repair, the old car will need the same repair! So you are only delaying repairs, constantly.

If you do need to buy a car, it’s best to buy a 3–to a 5-year-old car with cash, a few times as you can. If you were really smart, you would invest 40.000 a month, the same as that car payment would have cost you.
We mustn’t stop living because we want to invest on things that will mostly be enjoyed by others. We will invest some, and we will live some! Life is too short not to enjoy the little even though pricy things.
 

Jecies Mles

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I love everything about having a new car. After I bought the first one, there was no going back for me. I like the peace of mind that comes with knowing that my car will start first time on a freezing morning, that it won’t break down in the middle of nowhere, that worst-case scenario, it breaks down, the manufacturer will foot the bill. For me, you can’t put a price on peace of mind. It leaves me free to think of other more important things.
 

Margarita Otos

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The 2 most expensive things you are likely to buy is a house/plot and a car.
You will probably buy a few houses/plots in your life, but they will tend to go up in value, and since they go up in value you will make money with them. You will likely have many cars in your life, and you will lose every penny you ever spend on a car. If you buy a car for Ksh3,000,000 you will sell it in 5 years for 1,200,000. You just lost 1,800,000. You will repeat this a lot in your lifetime and you will lose every time you buy a car.

The best thing to do is spend as little as you possibly can in a car! The other side to this is the car loan, many car loans have very long terms these days, sure the rates can be low but if you are broke you will likely pay 18+% on any car loan that you get. So not only are you going to lose money on the car you are paying the bank for the privilege of losing money.

The best thing to do is to buy a car with cash or make sure you can pay it off very quickly. Keep that car and just repair it.
Most people like to use lots of excuses:
  • The paint is bad
  • It will need a new timing chain/transmission soon
  • It needs a lot of work
  • I deserve a new car
  • I want something safe
  • We need more room
  • I can’t go on a long trip with this car.
Sure there are times when you may need to change cars, new children, starting a business or whatever. But you can keep repairing cars for a long time. Don’t let a repair of 30,000 “make” you spend 200,000! Because guess what! By the time that new car needs the same repair, the old car will need the same repair! So you are only delaying repairs, constantly.

If you do need to buy a car, it’s best to buy a 3–to a 5-year-old car with cash, a few times as you can. If you were really smart, you would invest 40.000 a month, the same as that car payment would have cost you.
Kila mtu na maisha yake & that's why wengi wako na magari on loans thereafter wanauza na kwenda loss...wakikibizana na our thieves in govt offices.Though the conveniences involved in having a car outdoes the depreciation value na sioni tena in my lyf nikijikuta bila gari as long as I can afford. Kimpango lkn
 

Maina Ngunjiri

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Everyone has there own preference on what to buy or invest in. The convenience of having good vehicle outstrips all that you trying to say. Most people who own cars have a very good reason as to why they bought them. We can't be all in your school of thought. And by the way, those same cars help us carry out other business activities that help buy newer cars
 

Sandra Mwilu

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It is very hard to calculate the cost of quality of life.
What is the point of working hard if you can't enjoy the money?
Vehicles are not a liability, you have just focused on the depreciation of the vehicle's value but you have not factored in the convenience, safety, and comfort that come with a vehicle.
 

Barasa Masinde

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The 2 most expensive things you are likely to buy is a house/plot and a car.
You will probably buy a few houses/plots in your life, but they will tend to go up in value, and since they go up in value you will make money with them. You will likely have many cars in your life, and you will lose every penny you ever spend on a car. If you buy a car for Ksh3,000,000 you will sell it in 5 years for 1,200,000. You just lost 1,800,000. You will repeat this a lot in your lifetime and you will lose every time you buy a car.

The best thing to do is spend as little as you possibly can in a car! The other side to this is the car loan, many car loans have very long terms these days, sure the rates can be low but if you are broke you will likely pay 18+% on any car loan that you get. So not only are you going to lose money on the car you are paying the bank for the privilege of losing money.

The best thing to do is to buy a car with cash or make sure you can pay it off very quickly. Keep that car and just repair it.
Most people like to use lots of excuses:
  • The paint is bad
  • It will need a new timing chain/transmission soon
  • It needs a lot of work
  • I deserve a new car
  • I want something safe
  • We need more room
  • I can’t go on a long trip with this car.
Sure there are times when you may need to change cars, new children, starting a business or whatever. But you can keep repairing cars for a long time. Don’t let a repair of 30,000 “make” you spend 200,000! Because guess what! By the time that new car needs the same repair, the old car will need the same repair! So you are only delaying repairs, constantly.

If you do need to buy a car, it’s best to buy a 3–to a 5-year-old car with cash, a few times as you can. If you were really smart, you would invest 40.000 a month, the same as that car payment would have cost you.
My friend I shall not drive in heaven let me have the best machine on earth the one thing am assured of in heaven is a Mansion let me live well and have ataste of good living down here kwanza vile nimeona hii Covid inapeleka binadamu hats hupati nafasi ya kuenjoy hizo sijui mainvestment weeeeeee not apologizing
 

Claire Phibee

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You can't stop spending on something just because it depreciates in value.
First, appreciate the depreciation because you are the one using it.
Number 2, a car is becoming more of a necessity than just a luxury. So unahitaji gari. At some point, whether you like it or not, we'll be like the western worlds, US, specifically, where almost every household owns a car, coz the prices will have dropped drastically and it will be the norm to own a car. Some 10, 20 years ago kukuwa na gari Kenya ulikuwa unaitwa sonko na unapewa heshima yako.

Nowadays kuwa na gari, hata uende nayo ushago, nyote mnatoshana. You work to consume. If you can, buy the car. Depreciation achia accountants mwisho was mwezi wakifanya hesabu zao za kampuni kwa p&l and balance sheet.
 

Collins Maina

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But buying a car is not an investment unless you sell cars. Buying a car esp these days is essential just like buying a fridge or a cooker.
Land is also overrated, sometimes it might take forever for the price to go up. People should just do what they feel is a priority.
 

JAYDAN22

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This forum is aimed at cultivating the saving culture in members and teaching us that LESS is MORE!! In Kiswahili, they say "Kidogo Kidogo hujaza Kibaba. Saving is a culture that you need to practice and keep practicing until you perfect. In Super Savers Forum (SSF), you will be able to Learn, Earn, Save and Share the experience with others. In the spirit of saving, we will explore how you can buy a car without taking a bank loan or any kind of loan, be it a Sacoo loan or whatever.

How to buy a car in cash in Kenya!

Many people buy cars on loan; few people can walk into a showroom and pay cash for a car. However, like any other financial goal, if you start saving early, even before you start thinking of buying a car, then you can make it to buy a car without taking a loan.

As with any other savings goal, the trick is to anticipate the things you want to buy in the future and start saving for them early enough, even before you need them. The problem for most people is that they will work for five to six years, then wake up one morning and decide, “I have worked for long enough and I am now earning slightly more money, so now I need a car to prove that I have made it.” (Or for whatever reason). When such a person checks his or her finances, s/he finds that s/he cannot afford to pay cash for a car, but s/he can afford to pay the monthly repayments for a car loan.



Scenario 1: BUYING A CAR USING A CAR LOAN

So say you wanted to buy a car worth Sh600, 000 and you want a loan. First of all, most banks don’t offer full financing; they will give you something like 90% i.e. Sh540, 000, then you raise the Sh60, 000. In the old regime, before the Banking Act was amended to put a cap on interest rates, you would get a car loan for say 18% payable in between 48 to 60 months (4 to 5 years).



If you take the Sh540, 000 at 18% for 60 months (5 years), you’d be required to pay about Sh13, 712.46 to the bank every month (I haven’t included other fees such as loan insurance, etc, associated with loans). Affordable, right? Let’s see.

At the end of the 60 months, you will have paid back Sh822, 747.60 for a car worth Sh600, 000 and by the time you have finished paying your loan, the car will be worth less. Cars may lose between 10 to 40 percent of their value every year depending on mileage, model replacement cycle, how well they are maintained, fuel efficiency, etc. So your Sh600, 000 car today (which you will pay Sh822, 747.60 for) might fetch as little as Sh300, 000 in five years depending on a variety of factors.

What if you took an Sh540, 000 car loan at 18% for 48 months (4 years)? You’d be required to pay about Sh15, 862.50 per month. At the end of the four years, you will have paid back Sh761, 400 for a car worth Sh600, 000. Though the good thing is that by paying it faster, you pay much less.



The tables below show you how much you would pay for a car worth Sh600, 000 having taken a loan of Sh540, 000 (90% financing) at the old rates (about 18%), and the next table shows how much you’d pay for the car loan under the new more favorable rate of 14.5%.



Note that the faster you pay your loan, the less interest you pay. So for instance, a person who took a loan of Sh540, 000 at 18% and paid in 60 months will end up paying Sh882, 747.60 for the car, while a person who took the same loan and paid within 12 months will have paid Sh654, 086.40. A difference of Sh228, 661.20, meaning that the person who takes five years to repay the loan will pay Sh228, 661.20 more than another person who took the same loan at the same rate, but repaid within 12 months.


Cost of car Car loan amount
(principal)
Interest rate Monthly repayment Repayment period (months) Total amount paid to bank Total interest paid (extra added to cash price to buy car on loan) Total amount paid for car (loan + interest + 60K out of pocket
Sh600, 000Sh540, 00018%Sh13, 712.46 60 (5 years)Sh822, 747.60 Sh282, 747.60Sh882, 747.60
Sh600, 000Sh540, 00018%Sh15, 862.50 48 (4 years)Sh761, 400 Sh221, 400Sh821, 400
Sh600, 000Sh540, 00018%Sh19, 522.30 36 (3 years)Sh702, 802. 80 Sh162, 802.80Sh762, 802.60
Sh600, 000Sh540, 00018%Sh26, 859.02 24 (2 years)Sh647, 016.48 Sh107, 016.48Sh707, 016.48
Sh600, 000Sh540, 00018%Sh49, 507.20 12 (1 year)Sh594, 086.40 Sh54,086.40Sh654, 086.40

With new interest rates currently capped at 14.5%


Cost of car Car loan amount
(principal)
Interest rate Monthly repayment Repayment period (months) Total amount paid to bank Total interest paid (extra added to cash price to buy car on loan) Total amount paid for car (loan + interest + 60K out of pocket)
Sh600, 000Sh540, 00014.5%Sh12, 705.28 60 (5 years)Sh762, 316.80 Sh222, 316.80Sh822, 316.80
Sh600, 000Sh540, 00014.5%Sh14, 892.10 48 (4 years)Sh714, 820.80 Sh174, 820.80Sh774, 820.80
Sh600, 000Sh540, 00014.5%Sh18, 587.33 36 (3 years)Sh669, 143.88 Sh149, 143.88Sh729, 143.88
Sh600, 000Sh540, 00014.5%Sh26, 054.70 24 (2 years)Sh625, 312.80 Sh85, 312.80Sh625, 312.80
Sh600, 000Sh540, 00014.5%Sh48, 612.18 12 (1 year)Sh583, 346.16 Sh43,346.16Sh643, 346.16

*** NOTE: These are hypothetical figures and they may vary from the actual figures applicable to you. Any errors, inaccuracies, and omissions are not intentional and if spotted, will be corrected.


Scenario 2: BUYING A CAR IN CASH IN KENYA
How about if you want to pay cash for that Mazda Demio worth Sh600, 000?


Perhaps you are 23 to 25 years old, just graduated from college and started on your first job or business, still living at home with minimal expenses. Perhaps you earn Sh40, 000 net after paying tax and the mandatory deductions (NHIF, NSSF, HELB Loan, Sacco, retirement fund, welfare, medical insurance, etc). You spend Sh4, 000 on tithe (could be more depending on your gross salary), Sh3000 on fare, Sh3000 on lunch, Sh1000 Airtel Unliminet bundle (calls/SMS/data), Sh2, 000 on personal effects and contribute Sh5, 000 to help your parents buy food or utilities. That’s Sh18, 000. You are left with Sh22, 000, which you can channel to different savings goals.


Say one of your goals is to buy a car by the time you get to 30, and you decide that out of the Sh22, 000 you are directing to savings, you will dedicate Sh10, 000 per month to a money market fund earning an average of 11% per year. In five years, you will have Sh791, 155.02. Even if the car you wanted is now worth 800, 000, you’ll probably be able to add the extra Sh8, 844.98 and buy your car cash comfortably. Remember within those five years, if you are really good at what you do and you get enough opportunities, your earning power might have increased such that even though by then you have moved out of your parent’s house and are taking care of all your bills, you will be able to save much more than the Sh10, 000 per month. Also, sometimes the fluctuating interest rates could go as high as 18% depending on the performance of the markets, meaning that you could get to your goal faster.


Remember even as you channel the Sh10, 000 to the money market fund opened specifically for the car savings goal, you still have Sh12, 000 to channel to other goals. For example, maybe you are giving yourself two to three years to move out of your parents’ house, so you open another money market fund in which you channel Sh5, 000 each month and by the third year you have Sh212, 283.53 to pay deposit, reasonable rent and buy a few essential household goods to start with. And then the extra Sh7, 000 could go to other goals like Sacco shares and savings, etc.


This is a case of planning ahead when you still don’t have much responsibility, so you maximize that advantage by anticipating future goals and starting to save for them early. A 25-year-old who is lucky enough to have Sh22, 000 to save every month and decides to save Sh10, 000 every month for a car he/she will buy on his/her 30th birthday, will be in a totally different place from his/her age-mate who spends all his/her extra Sh22, 000 on clothes, booze, entertainment, and other things and then at 30 decides he/she needs a car. The one who started saving at 25 will be able to buy his/her car cash, while the one who never saved but realized they need a car at 30, will have to rely on a car loan and pay about 50% more for his/her car than the one who started saving early.


If you are blessed to have a relatively good job with little financial responsibility, take advantage of this time when you have no financial obligations to plan for your future i.e. start working on your mid- to long-term goals today. You will thank yourself later for it.


Even if you have the responsibility, make saving a habit from early on. Every time you get money, even if it is not a regular income, cut 10% to 30% of it and put it in savings and then spend the rest after saving. A person who saves Sh1000 a month, is better off than one who saves nothing at all. And the good thing about saving beforehand is that even though you do decide to take a loan to help you buy a car, you will take only a small percentage (as you’ll have saved the larger percentage of the cost of the car), and so you will be able to pay off the “small” loan faster and thus pay less interest.


And now to end, here’s a table showing how much you would save if you contributed the loan repayment amounts to a money market fund so that instead of using them to pay loans, you are accumulating that money to buy car cash in five years.


Saving in a money market fund at 11% for 5 years:

Monthly contribution Interest Saving period
60 months
Interest earned Total principal saved Total after 5 years
(principal + interest)
September 2021
Sh12, 705.28 11%5 yearsSh242, 867.81Sh762, 316. 80Sh1, 005,184.61
Sh13, 712.46 11%5 yearsSh262, 120.56Sh822, 747.60Sh1, 084, 868.16
Sh14, 892.10 11%5 yearsSh284, 669.97Sh893, 526.00Sh1, 178, 195.97
Sh15, 862.50 11%5 yearsSh303, 219.65Sh951, 750.00Sh1, 254, 969.65
Sh18,587.33 11%5 yearsSh355, 306.15Sh1, 115, 239.80Sh1, 470, 545.95
Sh19, 522.30 11%5 yearsSh373, 178.00Sh1, 171, 338.00Sh1,544,516.57


*These are just hypothetical figures; interest rates vary from year to year and sometimes from month to month, but the money market tends to have an interest rate of about 10% on average (can go slightly higher or lower). The higher the amount you save, the faster you can accomplish your goal.
wow great insights
 
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