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Older cars: should you extend your motor service plan or invest the money?

Older cars: should you extend your motor service plan or invest the money?
Warren Ingram
By Warren Ingram
7 Nov 2024
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There are various factors you need to consider when making a decision on motor service plans, such as how long you plan to keep the car and what mileage you do. 

Owning a car that is coming to the end of its service plan leaves you with a difficult decision. Everyone will have an opinion about what you should do.

Armchair motor mechanics will tell you that you should take care of some of the servicing yourself and pay a backyard mechanic to do whatever else is necessary. The logic is that the cars are so well made that there is not much to do.

Others, however, will tell you that it is too risky to own a car without a service plan. They will remind you that you could receive an unaffordable bill should something significant go wrong.

Another talking point is the car’s resale value if it still has a service plan – some feel this is an advantage that will improve the resale value.

What to consider


Some factors might make your decision a little easier:

How long you plan to own the car. If you are prepared to keep the car for four to six years after the service plan expires, I would not extend the service plan. Most of the time, you can only extend the service plan for two more years, so there is little point in paying a large lump sum for a limited timeframe and then carrying the risk for the last two or three years of ownership.

The relative value of the car. If it is a high-volume seller in South Africa, you are reasonably sure of getting parts and finding mechanics who will service the vehicle at a reasonable cost. This would suggest you don’t need to extend the service plan. If you own an expensive or rare vehicle, the parts might be costly and the pool of suitable mechanics might be tiny. Extending the service plan might be a good option for you.

How much mileage you do in a year. The age of a car is less of a consideration than the mileage. If you do high mileage, the vehicle wears out faster, which requires more regular servicing.

The cost of the extended service plan. If you are going to pay R80,000 for the peace of mind of driving your car for another two years, I feel that might be overkill. However, if the cost is only R30,000 it could be worth it.

A R60,000 service plan extension


A service plan extension is usually limited either in terms of distance or time. That means an extension might be for an extra 30,000km of driving and/or another two years.

Consider what happens if you are quoted R60,000 to extend your service plan by two years and/or 20,000km. If you have the R60,000 available and invest it in a balanced unit trust, you should expect growth of 10% per year over a typical five-year period. That equates to R6,000 per year.

Growth will not be in a nice straight line. In some years you will have more growth and in others you might lose money. So, you need to be prepared for the roller-coaster ride of investing. However, an average of 10% per year is a realistic assumption.

If you don’t like the volatility of investing, you could put the money in a money market account. However, this will probably generate 7% interest per year, which is only R4,200. You might pay tax on the interest, so you probably won’t have much money after five years. If you are prepared to invest for five years, I prefer a balanced unit trust over a money market account.

If you are prepared to drive your car for five years after the service plan expires, it is very possible that your annual service costs will not exceed R6,000 per year.

If you are unlucky and have significant problems, you will have the money to pay for this. If nothing major happens, your R60,000 might grow over the five years, leaving you with extra money to top up your replacement car purchase.

For my money, I know what I would do. DM

Warren Ingram is a certified financial planner, bestselling author and cofounder of Galileo Capital.

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.



 

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