Car or bus: the real weekly cost
Mere is 17 and works 15 hours a week at a supermarket on $23.15 per hour. After tax and deductions her take-home pay is $298 per week. She is deciding whether to buy a used car for $6,800 or keep taking the bus. The bus costs $32 per week. The car would be paid for with a two-year loan at 12.5% p.a., with monthly repayments of $322. Running costs: fuel $48/week, insurance $62/month, registration $110/year, WOF $65/year, and tyres/maintenance budgeted at $600/year. Mere also wants to save $2,500 for a course next year. She has $900 in savings and no other debts. She lives 7 km from work and the bus route takes 45 minutes each way. She asks you to compare the real weekly cost of each option and tell her whether the car is affordable.
1. Convert all the car costs to weekly amounts and calculate the total weekly cost of the car. Compare it with the bus fare.
Read the worked answer
Convert every cost to a weekly figure (52 weeks, 12 months):
- Loan: $322 × 12 ÷ 52 = $74.31
- Insurance: $62 × 12 ÷ 52 = $14.31
- Registration: $110 ÷ 52 = $2.12
- WOF: $65 ÷ 52 = $1.25
- Tyres/maintenance: $600 ÷ 52 = $11.54
- Fuel: $48.00
Total car = 74.31 + 14.31 + 2.12 + 1.25 + 11.54 + 48 = $151.53 per week.
Bus = $32.00 per week. Difference = 151.53 − 32 = $119.53 per week more for the car, about $6,216 a year.
2. Calculate the total amount repaid on the loan and the interest. Explain why the weekly loan cost is not just $6,800 ÷ 104. Then calculate the car's running cost after the loan is repaid.
Read the worked answer
Total loan repayments = $322 × 24 = $7,728. Interest = 7,728 − 6,800 = $928.
The weekly repayment is not $6,800 ÷ 104 = $65.38, because interest is charged on the reducing balance and the loan is repaid monthly. The actual loan share is $74.31 per week, so the interest adds about $8.93 per week over two years.
After the loan is repaid, the car still costs fuel + insurance + registration + WOF + maintenance = 48 + 14.31 + 2.12 + 1.25 + 11.54 = $77.22 per week, still well above the $32 bus fare.
3. Assess affordability: calculate each option as a percentage of Mere's take-home pay and the money left for saving and other expenses. Recommend what she should do, with reasons.
Read the worked answer
Car as a share of take-home pay = 151.53 ÷ 298 = 0.508 = 50.8%. Bus = 32 ÷ 298 = 10.7%.
With the car, money left = 298 − 151.53 = $146.47 per week. To save $2,500 in a year she needs 2,500 ÷ 52 = $48.08 per week, leaving 146.47 − 48.08 = $98.39 for food, phone, clothes and everything else. That is very tight and leaves no buffer for a $600 repair or a higher insurance premium.
With the bus, money left = 298 − 32 = $266; after saving $48.08 she has $217.92 spare.
Judgement: the car is mathematically affordable but financially risky at more than half her income. A safer plan is to keep the bus, save the $119.53 weekly difference, and revisit the car when savings cover the purchase or when her hours increase. If she needs a car, a cheaper model or a shorter loan term with a smaller repayment would reduce the risk.