Car Finance: How to budget for a new car
Posted: Jul 21, 2016
Just because you’re buying a vehicle on finance, doesn’t mean that you should forget about budgeting and working out how much you can afford to borrow.
Taking out any form of finance is a serious commitment that should only be considered when you are sure you can afford to make regular payments. Many people get carried away and sign their contracts, only to encounter problems months down the line.
The most important thing to remember before taking out a loan, is to budget. You have probably been told the same thing over and over again; however, we can’t stress enough the importance of working out your budget before buying a car on finance.
It’s always good to start at the very beginning. Work out your current financial situation, by sitting down one day and going though all your papers. Familiarise yourself with your finances, find out how much you spend. This will give you a great starting point, from which you can go forward and start working on your budget.
Once you have a good idea of your current financial situation, you can start working the budget out for your new vehicle. Open a new spreadsheet and try to figure out how much exactly, you’d be able to spend on your new vehicle each month. If the numbers aren’t adding up, and you don’t think that you can afford a vehicle at the moment, it’s always better to wait. Don’t sign up for anything you don’t think you’ll be able to afford, as it will only end with your new car getting repossessed due to failed payments.
You have to remember that taking out finance for a new vehicle, is a serious commitment that’s going to have an effect on your finances.
It’s always good to have some money saved up to pay up-front, as this will mean that your term won’t be as long. Let’s say your new vehicle is worth £40k. If you have £10k saved up, you’ll only have to pay back the remaining £30k. Although, it isn’t an option for everyone, paying some money up-front, can greatly reduce the duration of your term, making it easier for you to make future payments.
If you are purchasing a vehicle on PCP, it’s very important you remember about the final payment that you will have to make. If you’re unfamiliar with how PCP works, it’s similar to Hire Purchase, in that you still have to make regular payments; however, you lease the vehicle instead, with an option at the end of your term to purchase the car or return it. If you’re planning on keeping the car, it’s crucial that you have enough money to pay the final payment, which is typically substantially larger than your standard monthly payments. Before signing a contract, you will be given the amount you’ll have to pay, which gives you enough time to save up. Should you choose not to make the final payment, you always have the option to return the car or part-exchange it for a new vehicle; however, that would mean you’d have to start the process all over again.
Keeping track of all your payments, is a crucial part of taking out a loan. Make sure you keep track of what’s going out of your account, and if you encounter any problems, contact your finance provider straightaway. If a payment fails to come through, for example, due to a bank error, it’s important that you let your provider know, otherwise you risk getting your vehicle taken away. It’s your job to ensure your payments are coming through, so it’s up to you to keep track of everything.
As mentioned above, it’s always a good idea to keep a spreadsheet, documenting all the payments and keeping track of how much you still owe. Due to the fact that most terms last a number of years, it’s quite easy to lose track, which isn’t ideal considering finances are an important matter.
It’s important that you know, taking out any form of finance is serious. It’s not something that should be taken lightly or dome on a whim. You have to do your research and go into it prepared, otherwise you risk damaging your credit score or even getting taken to court in the worst case scenario.
Be smart about it, and you’ll do just fine. Don’t rush anything, and remember to plan ahead, in order to have a stress-free and pleasant experience.
If you’re in the market for a new car – Consider Trusted Car Credit. We offer extremely competitive rates for anyone after a new vehicle, so don’t hesitate – fill out our online application today. Whether you’re after a car, motorbike or a van you’re after, we will do our best to help you get the vehicle if your dreams.
Trusted Car Credit Ltd
Unit 4, Fairhills Trade Centre
I have been a passionate write right from when I was so young. Recently I am delighted in getting involved in writing in the automotive industry.