Affording a Car Loan – How to Budget to Allow for Repayments – Aussie Car Loans

Affording a Car Loan – How to Budget to Allow for Repayments

how to budget for a car loan

Creating a budget for a car isn’t always as simple as it sounds. Some people fail to take into account the other expenses that come on top of their monthly repayments and quickly begin to feel burdened by the purchase.

When budgeting for a car, one should consider many things that are not immediately obvious such as whether or not they can pay cash or credit on a loan, or would they be able to afford other monthly expenses like fuel, carwash, insurance, repairs, and maintenance.

A car is most likely the second most expensive thing you’ll ever purchase after a house. So it matters to find the best way to finance this investment. There are efficient ways to afford your car within the allocated budget.

How much can I afford to spend?

Fitting your car expenses into your household budget should be balanced. One of the recommended ways is to spend less than 10% of your monthly payment for your car so that you can keep your total car costs below 20% of your income. You should spend no more than 15% of your income on a vehicle purchase.

It’s essential to get a vehicle that costs below 10-15% of your income because the car’s total cost isn’t the overall expense of what you will be spending. You’ll also need to consider the costs of repairs, fuel, insurance, and some other monthly fees that you’ll need to maintain the vehicle. We put those costs at another 5%-7% of your take-home pay. So, all in, you’re looking at a total budget that is ideally no more than 20% of your monthly net pay.

It’s a good starting point for you to target a price that won’t leave you struggling to pay your bills every month. Make sure you have enough savings left for an emergency after you have paid for your car. If you don’t have enough savings to buy the car in full, use the Aussie Car Loans Simple calculator to help you find the car loan payment that fits your monthly budget.

How to use our calculator

When you calculate your monthly car loan payment before going to the car shop, you can negotiate right and choose the best loan aligned with your budget plans. With a car loan calculator, you can figure this out easily.

You just need to put the loan amount you think you’ll pay for the car after negotiations. Next, the interest rate where you can enter the rate you’ve qualified for, or you can just estimate your rate based on your credit score. Then, the comparison rate PA any fees or charges that will be added to the car loan.

Enter how long you plan to pay off the loan, whether it’s three or five or seven years. Then, input your desired balloon payment. A balloon payment is a lump sum that you just actually set aside when getting a loan, payable at the end of your loan term, and is the vehicle’s residual value.

When everything is correctly entered, the loan calculator will show your possible monthly repayments with the car, interest rate, and loan term that you prefer.

The hidden cost of owning a car

There are common factors you should consider before owning a car. The number one and most important is your financial status. Make time to list down expenses every month from your monthly income. List the rent expenses or mortgage, bills, groceries, child expenses, savings, and spending on entertainment. You will then know how much you can afford to spend on a car. Remember, your payment isn’t your only car expense.

Insurance is required if you want to drive a vehicle. Before you start driving, you’ll have to decide if you will pay your insurance product upfront for a year or on an incremental basis. Registration is also mandatory. Know how much registration will cost and add this to your yearly budget.

One of the most important things you should know is how much the car will cost to run, and keep it in top shape. You need to find out the estimated fuel economy, how often or far you’ll need to drive in a week then, calculate how much fuel may cost per average week. It requires routine maintenance and scheduled servicing. Larger cars may take more service and attract higher servicing costs.

Tips for paying off a loan

With interest rates so low nowadays, more than half of all cars were bought with car loans. To pay off this loan, you need to check your Current Balance and Payoff Penalties. It’s important to track your balance. Retrieving the exact amount of money owed on your car loan will make it easy for you to make financial plans regarding paying off the loan. You can also review your mailed monthly statement.

It is also essential to obtain a copy of your bank or loan agreement. You can inquire about this from your financial institution. You can do it in person or by logging in to your account on your lender’s website. It is better to consult with your financial institution for loan payoff recommendations. Loan advisors may be able to educate you on how you could possibly pay off your car loan faster, especially if penalties apply.

Read: How to Pay Off Your Car Loan Faster

Mistakes to avoid when getting a car loan

When buying a car, you should also look closely at the terms of the loan. The first thing you must do is researching beforehand. Knowledge is power. Avoid being clueless when you’re planning to get a car loan. When you don’t have enough knowledge for a car loan, you are just giving your sales agents the power to manipulate your buying decision into paying more. If you know the process, you can avoid being surprised by the unexpected additional expenses you might have encountered.

You need to avoid adding extra options that you don’t need in the end. Purchase only the things you need. Don’t let the salesman encourage you to add more equipment to your car if you can’t afford it.

Avoid not considering your finances or not budgeting your finances carefully. Be sure that you have money to pay off your loans without touching your savings. Most importantly, you also have to make sure that you’ll still have enough money for your day by day living expenses.

Affordable Car Loans with Aussie

Knowing how to budget will help you afford a car loan and manage the monthly repayments easily. It will also help a lot to find a car loan with a low-interest rate to ensure that it fits your finances. Aussie Car Loans can help you with that. We have a wide range of car finance products with competitive fixed rates and flexible loan terms to fit your needs.

We also have an online loan calculator that you can use anytime to plan the budget for your car loan. You can also speak with one of our loan professionals to know more about the calculation of interest, balloon payments, and monthly repayments.

Call Aussie Car Loans today at 1 300 769 9999 or enquire online to get a pre-approval on your next car loan.

Please wait...

Our Partners

  • Suncorp Bank
«