Purchasing a car is a hard decision. There are a lot of figures and funds concerned; it’s going to be an expensive affair, probably second only to buying a home. From buying outright, o buying a car on finance, there are many options available. So it’s important to make sure you get the best deal, but can you afford it?
By collecting a few figures you should be able to work out your total finance plan for buying a new car. If you intend to pay for your car completely with the funds you have in full, then your car budget will be simple to calculate by looking at your savings and deciding how much of that you’re willing to spend on a car. Conversely, if you need to pay for your new car on a monthly basis to stretch over years, you’ll require to:
- Evaluate your monthly finances.
You should put the entirety of your monthly income towards your car, so you’ll have to work out how much you are willing or can afford to spend on a car. For instance, if your monthly disposable income is £500, you may be prepared to put £100 of that to your new car.
- Calculate your annual budget.
Multiply the monthly amount by 12 to get your total annual budget for spending on your car. If you were using £100 of that each month, you’d have £1,200 per year.
- Work out your total budget.
After that work out how many years you would be willing to pay for your car over. For example, you might decide that in your present circumstances you don’t want to be paying for your car any longer than three years. In which case you would multiply your annual amount (£1,200) by 3 to get your total car budget: £3,600 plus any interest you would have accumulated over that time.
You may be able to increase that budget even more if you have some money set aside from the planned sale of your current car, or if you have savings. So add this amount on to the figure you have to put down as a deposit to get your grand total.
You could also try a lease plan purchase. For this, you agree the annual mileage, and the car’s guaranteed future value is deferred until the end of the agreement. Once the contract ends, you will be responsible for making a final payment. Lease purchase repayment periods are typically taken over two to four years and you can settle the balance at any stage.
Alternatively, with a hire purchase agreement, you pay a deposit of at least 10% and then repay the balance, plus interest, in monthly instalments over one to five years.
This is a good option for if anything goes wrong throughout the hire term, the lender is jointly responsible with the dealer for fixing the problem. And if you don’t want to keep the car, you can sell it back to the dealer at the end of the term.
Despite this, you should bear in mind that you will not own the car or be able to sell it until all payments are made. Also, if you do not keep up with payments, the car can be repossessed.
As you evaluate car financing, there are some important things to do before making your final choice.
- Compare the total cost of borrowing, together with all charges across the loan.
- Make sure you can meet the expense of the monthly payments and keep up with regular payments.
- Be cautious of early repayment or other charges which set in if you surpass the estimated mileage in personal contract plans, also counting personal leasing.
- Judge interest rates by looking at their APR, which includes all the charges you will have to pay. Keep in mind that a higher deposit will normally mean a lower interest rate.
- Using your own savings is the cheapest and easiest option for buying a car while personal loans are usually the cheapest way to borrow to buy a car, but only if you have a good quality credit history. If you have a bad credit rating, you may need to choose one of the alternative financing methods to buy a car.