Step 1: Your monthly income
How much do you earn each month? Is it a regular amount? If not, try to average out the past 6 months. Write it down at the top!
Step 2: Your monthly outgoings
How much do you spend each month? Let's think about these ones, in terms of what you personally pay each month (we know you might share costs with your partner or housemates, but car finance is for you individually).
- Housing (i.e. rent or mortgage)
- Utilities and other bills (i.e. council tax, gas, electricity, water, home insurance, broadband, TV, mobile phone)
- Commuting and car costs (i.e. commuting costs, car insurance, MOT, servicing, road tax)
- Your monthly credit commitments (i.e. loans, credit cards)
Step 3: Calculate your monthly disposable income
Now you've got your monthly income and monthly spend, you can deduct the spend from the income to see roughly what your monthly disposable income might be. For example, if you earn £1,500 per month, and you spend £1,000 per month, your disposable income would be £500.
But wait!! Before you get excited and think you can spend £500 per month on a car, THINK AGAIN. Remember those gorgeous shoes you saw recently? The dinner you've got booked in a few weeks? The new furnishings you need to buy for your place? Those things come out of your monthly disposable income too. Build yourself a little buffer so that you can keep living your life as you would normally, even with your new car finance in place. For example, we might decide that a £200 per month buffer is good (and gives some wriggle room for the ever increasing energy prices!), which leaves us in this example with a £300 monthly budget.
Step 4: Investigate your credit history
There's loads of free tools out there where you can find out more about your credit score. We really like Credit Karma, as they also give you cool tips on how to improve your credit score! If you're not familiar, you can start to get up close and personal with your score, and this could help you understand what sort of rate you might be offered by car finance companies.
Step 5: Calculator time!
Head over to our handy hire purchase car finance calculator to see what sort of budget you could be working with, and how much it might cost to finance a used car. Don't forget, you may have some savings or an old car to part-exchange as part of the purchase.
Step 6: Get an accurate budget on Carmoola
If you're keen to upgrade your ride, then you may want to get a budget for real! It takes 60 seconds in the app, and there's no paperwork or faff to worry about.