Tips on how to drive off in a car you can afford
Financing a car is a big commitment
If you qualify for the monthly instalment on the full value of the vehicle that you wish to purchase, there is no need to put down a deposit. However, it may be wise to do so anyway.
Putting down a deposit reduces your monthly repayments because you’ve effectively paid for a piece of the car upfront. This means that you are taking out a smaller loan.
If you don’t have cash for a deposit, you can trade in your old vehicle against the value of the new car.
The downside of this strategy is that the dealer needs to make a profit against your old car, so you’ll probably get a little less than if you have sold it privately.
If you decide to trade your car in, do your research and know the value of the car so that you can haggle.
Another option for those who can’t afford a cash deposit is to resort a balloon payment deal. In this scenario, you pay a large lump sum at the end of your agreement. This makes your instalments more affordable.
What should you be paying for your car?
You should work out what your monthly instalment and insurance amount will be. Once you have this figured out, you should save three times this amount so that you have a threemonth buffer should you lose your income.
This will also give you an indication of what it will be like paying for that car every month. If you find that it’s unaffordable, you should look at a different car that’s in line with your budget. If you can set the funds aside without a hitch, you’ll have
saved your deposit.
In general, the total monthly instalment you pay should not be more than a third of your disposable income. You shouldn’t keep applying for finance if
you’ve been rejected a few times, as this can have an impact on your credit score. Instead, pay off your debt first. Come up with a strict budget and savings plan. Ask yourself where you can cut spending. Your Netflix subscriptions, eating out at restaurants, and a takeaway coffee every morning add up. Start making sacrifices and you’ll be surprised how much you can save. If you absolutely can’t come up with a deposit, you should look at car dealerships that offer no deposits or cash-back deals.
How much should you save for your vehicle finance deposit?
• Financing a car is a big commitment, both in terms of duration and impact on your budget. A lump sum saving can help offset this significant expense and increase your chances of landing a suitable loan.
• Investigate the vehicle financing routes you can take and how much you should save by way of a deposit.
• Tip: Your credit score plays a big role in your vehicle finance application.