If you love cars as much as we do, it can be tempting to buy a new car that has been on your wish list forever. Cars can give you a huge amount of freedom – whether you’re planning to use yours for work or play. Getting on the road is a great feeling and you’ll want to make sure you get the car that you want as soon as possible.
Remember though, getting a car is a big commitment and you need to make sure that you can pay back your car finance in full and on time. Understanding car finance and working out exactly how much you can afford to borrow from a lender is the first step in a successful journey.
What is car finance?
Very few people can afford to buy a car outright. Whether you have some kind of down payment or not, car finance is often a great way of getting the car that you want and paying it back in smaller sums in regular instalments (usually every month).
There are many different types of car finance and finding the right one for you is always important. If you’re unsure about the best options for you, it’s good to speak to experts. They’ll help you decide whether you’re better getting car finance suited to a car for business purposes or whether a personal loan would be a better option.
You can also consider the difference between secured and unsecured loans – think about whether you want to offer the car as security for the loan and enjoy lower interest rates and fees than with an unsecured loan.
Doing the sums
The most important thing you need to do when you’re figuring out how much car finance you can afford is to do your sums.
Ask yourself the following questions:
- What is my monthly income?
- What are my monthly outgoings?
- How much do I have remaining and how much of this can I afford to spend on car finance?
It’s very important that you don’t overstretch yourself financially – you shouldn’t opt for a car finance plan that you will struggle to repay. Find a car loan that you will be comfortable paying back each month.
Look out for hidden extras
When you’re working out how much car finance you can afford, you’ll need to remember to account for extras which may be hard to spot in the initial quote from a lender.
- Interest rates: figure out how much these will amount to and remember to add this onto the amount that you’ll be paying back each month. If it’s a fixed rate, you’ll be able to budget more accurately.
- Early repayment fees: be aware of these in case you want to pay your loan back early. Make sure you know what these will be before you agree to a car finance agreement.
- Maintenance and repair costs: many people forget that once you have a car it’s often over to you to take on the maintenance and repair costs. If things break unexpectedly, you could be faced with sudden high costs which you weren’t ready for so always have a budget for this wherever possible.
Get organised and make payments on time
Once you’ve figured out how much car finance you can afford, it’s time to get organised. It’s vital that you always make car loan repayments on time and in full.
Defaulting on your car loan can result in your credit rating being affected, which will result in a poor credit score. Make sure you avoid this by getting organised and budgeting well.