Budgeting for a car isn’t as simple as it seems. You need to think about loan repayments in addition to fuel, maintenance, and insurance costs. With so many factors to consider, it’s hard for many car buyers to figure out how much money they need to allocate for their car purchase.
Here are a few tips and tricks to help you budget your next car purchase:
Use a car repayment calculator
An online car loan repayment calculator is a great tool that can help you figure out a budget. All you need to do is put the loan amount, interest rate, and payment frequency to see what your loan payments would look like. You can also add a deposit or a balloon payment so you can see how those affect your car loan repayments.
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. It’s important to remember that car loan calculators are estimates. They can be used as a reference but aren’t indicative of how much a lender will let you borrow and at what rate.
Review your finances carefully
Balancing your expenses can be tough, but it’s the key to a healthy financial future. When budgeting your car purchase, the rule of thumb is to spend less than 10% of your monthly income on car loan repayments. It’s also advised that you find a car that’s 15% or less of your total income.
Ideally, your total car costs (i.e., loan payments, insurance, fuel, maintenance, etc.) should come at around 20% of your monthly salary. These numbers are not set rules you need to follow to the letter. They’re merely guidelines there to help you work out a budget. Use them as a starting point as you figure out a price range that won’t leave you struggling to pay your bills every month.
Get a pre-approved car loan
If you want something more concrete, try applying for a pre-approved car loan. Formulate your budget with ease by having a lender tell you how much you could potentially afford. A pre-approved loan offers an estimate of how much a lender will allow you to borrow. This is still subject to formal approval and could change based on your circumstances.
Aside from making budgeting easier, a pre-approved car loan gives you more negotiating power when you’re at dealerships. A loan pre-approval shows sellers and dealerships that you’re serious about buying a car and have the means to do so.
Don’t forget about hidden costs
Unfortunately, car loan repayment calculators don’t include hidden costs of homeownership. When you’re figuring out a budget, make sure to list insurance fees and maintenance costs. You should also think about the daily costs of using a car by adding fuel, parking, toll roads, and the like to your budgeting.
These hidden costs may seem insignificant at first but could quickly add up over time. It’s best to put them in your budget now rather than be surprised by your high car fees later.
Find an affordable loan with Aussie Car Loans
Knowing how to budget will help you afford a car loan and manage the monthly repayments easily. But the best way to get low repayments is by finding a low-interest rate car finance with great loan features. Aussie Car Loans can help you with that!
As a leading car finance broker, we have a wide range of car loan products with competitive fixed rates and flexible loan terms. We can help you find a car loan that fits your needs perfectly. Call Aussie Car Loans today at 1300 889 669 or enquire online!
FAQ
Are car loan calculators accurate?
A car loan calculator is only as accurate as the information you put into it. These repayment calculators are useful when trying to see how different factors affect the total cost of your loan and repayments.
How much should my car loan repayments be?
It depends on the type of car you want to buy and the loan you apply for. Generally, a good loan-to-income ratio for car loans is 10% to 15%. This means you should ideally be spending only 10% to 15% of your income on car repayments.
How can I lower my car loan repayments?
You can lower your car repayments by putting down a deposit or adding a balloon payment to your loan. You could also lengthen your loan term for lower repayments, but this could run up interest costs.
How to calculate car loan repayment?
Use an online car loan calculator to calculate potential loan repayments. Adjust the fields in the calculator to better understand your loan costs. Note that these calculators are only estimates.
What is the maximum amount for a car loan?
It depends on the lender and the financial situation of the borrower. Some lenders allow buyers to borrow as much as $100,000 for a car loan.
How much should I spend on a car loan?
Ideally, your car loan shouldn’t cost more than 15% of your salary. But it all varies depending on the borrower. Review your finances carefully to figure out what price range suits your current situation.
What should my budget goal be for car repayments?
Generally, your car repayment shouldn’t be more than 10% to 15% of your income. But you should also take into consideration any other debts you have to pay like your mortgage or credit card bills. Look into your finances and see how much your price range should be.
How much is too much for a car loan repayment?
If your car loan repayments are over 15% of your salary, then it’s probably too much. Before applying for a car loan, compute your potential repayments using a car loan calculator.
