How Much Car Finance Can I Afford?
Car finance is a godsend for those who can’t afford to pay for a new vehicle outright. However, like your budget, finance also has its limits.
Finding a car finance plan that you can comfortably afford is crucial. Stretching your budget too far could put a real strain on your finances, especially if something unexpected crops up 😟
Whether you're a first-time car buyer or considering an upgrade, read on to discover how to calculate what you can afford 😃
Got a specific question? Why not jump to:
- Understanding your car finance affordability
- What type of car can you afford on your salary?
- What is the process for calculating car finance?
- How to budget realistically for car finance
Understanding your car finance affordability
Before hitting those car showrooms and getting blindsided by the latest models, it's important to assess how much car finance you can afford.
Affordability isn't just about covering the monthly payments; it also includes insurance, maintenance, fuel, and any unexpected repairs.
Start by taking a thorough look at your monthly income, subtracting your regular expenses, and seeing what remains.
This amount will give you a rough estimate of what you can comfortably put towards your car without compromising other financial responsibilities.
Understand that different car finance types will also impact how much you need to pay. For example, hire purchase loans will typically require higher monthly installments than PCP.
What type of car can you afford on your salary?
Your salary plays a significant role in determining the kind of car you can afford.
Whilst it may be tempting to opt for a high-end model, it's essential to be realistic about the type of car that you can afford.
A general rule of thumb is to aim for monthly payments that are priced no more than 15% of your monthly salary.
If you earn £3,000 a month, for example, look for cars around the £450 monthly payment mark depending on your circumstances.
Remember, this is a ballpark figure, and personal circumstances can adjust this percentage up or down.
More car finance and credit guides
- What Is a Credit Score And Why Is It Important?
- HP vs PCP: Which is right for me?
- What is a Good Credit Score?
- What’s The Best Way to Pay for a Car?
What is the process for calculating car finance?
Most car finance providers will have online calculators that you can use as part of your initial research. These will allow you to explore the relationship between your desired loan amount, interest rate, loan duration and what your monthly repayments will be.
The calculation considers the total amount borrowed, adds the accumulated interest over the loan's term, and divides this sum by the number of months.
You can use these calculators to get an initial idea of how term length and interest rates may impact the total interest payable, and therefore the overall cost of purchasing the car.
We have a great online tool you can use to calculate your budget. Keep in mind that like any car finance calculator, it only provides a general idea of the costs involved.
To receive a tailored quote, a lender will often need to carry out a soft credit check to understand your specific circumstances.
How to budget realistically for car finance
Realistic budgeting starts with honesty. So, list all your monthly expenses, from groceries to utility bills.
Next, subtract the total amount from your monthly take-home pay.
The amount left is what you can potentially put towards a car. However, don't allocate all of this to a car payment. You'll want to save some for personal leisure, unexpected expenses, and savings.
A sensible approach is dedicating a portion, say 60% of this amount, to car finance, ensuring you aren't left feeling financially stretched each month.
Get car finance with Carmoola
When you're ready to take out car finance, Carmoola is here to simplify the journey. We offer used car finance tailored exclusively to fit your needs, all managed through our user-friendly app.
We prioritise giving you the best deals based on your personal circumstances, without any bias towards specific dealers.
Our online application process is straightforward, and our aim is to ensure you drive away with a deal that fits comfortably in your budget.
Choose Carmoola, embrace a hassle-free car financing experience, and drive away in your dream car 😀
FAQs about car finance affordability
How can I assess my car finance affordability?
Begin by calculating your monthly income after taxes, subtract all monthly expenses, and determine what remains for car-related costs.
How much can I afford for a car based on salary?
A common rule suggests spending no more than 15% of monthly take-home pay on car finance.
Can you explain the steps to calculate car finance?
First, determine the car's total cost, subtract the down payment, factor in interest, and divide by loan duration to get monthly payments. Sound too complicated? You can also use an online car finance calculator like the one offered right here at Carmoola.
How can I create a practical budget for car finance planning?
List all expenses, set aside funds for unforeseen costs, and use online tools or consult experts to create a car finance plan.
How can Carmoola help me find the right car finance solution?
Carmoola offers a range of hire purchase car finance offers tailored to fit your individual needs. We also offer in-depth guides in our blog about the different types of finance available.
