I Earn Ksh110K Gross, How Do I Repay My 7-Year Car Loan Sooner? Money254 Cash Clinic

I have been working on contract for the past three years. In January, I finally got a permanent and pensionable job with a leading financial institution. My gross salary is Ksh110,000 and I have access to a number of facilities. In May I took up a car loan facility for a Ksh1.6 million Mazda Axela. The interest rate is 18% and my monthly instalments come to about Ksh34,000. I will be paying the loan for 84 months (7 years) although I plan on increasing my contribution when my salary increases. I had not factored in the changes buying a car would have on my budget and recently, my take home has continued to shrink due to statutory deductions that took effect this year. My net pay, after the loan instalment has been deducted comes to about Ksh44,000 and now it’s barely enough to cover my routine bills which are: 

• Rent - Ksh22,000 
• Wifi and utilities - Ksh5,000 
• House shopping - Ksh10,000

This leaves me with less than Ksh10,000 for fuel and car maintenance. My big hope is that my salary will be reviewed in January but I also realise that I made a mistake somewhere but I am not sure how to recover. 

Raphael, Roysambu

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Expert's Take

Understanding your financial goals and the various options available for saving and investing is important for achieving financial security and peace of mind. However,everyone’s financial situation is unique,and what works for one person may not necessarily work for another. 

Read Also: How I Exceeded My 2024 Savings Goal of Ksh300,000 and Saved Ksh450,000

Assessing your current financial situation, there are areas you need to adjust and follow these guidelines;

1. Assess Spending Priorities:

Car Loan: The loan consumes over 30% of their gross salary, which is unsustainable. Consider refinancing the loan for a lower interest rate or extended tenure to reduce monthly payments.

Reduce Discretionary Spending: Evaluate and minimize house shopping and non-essential expenses. For example, create a detailed monthly budget and stick to it.

2. Increase Income:

Supplementary Income: Explore side hustles or freelancing opportunities(that align with your skills and interests or market research) to increase income, especially since the current job is stable.

Salary Adjustment: While hoping for a salary review, consider negotiating benefits like transport or fuel allowances to ease expenses while considering the job description.

Read Also: Why is My Bank Account Frozen?

3. Consider a long-Term Strategy:

Build an emergency fund by saving any surplus from reduced discretionary spending or additional income.

Avoid further debts until the current financial situation stabilizes.

In summary, focus on reducing expenses, increasing income, and possibly refinancing the car loan.