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Can I afford that New Car?

By: Tracy Wilkinson - Updated: 7 Oct 2012 | comments*Discuss
 
Can I Afford That New Car?

So you're thinking of buying a new car - but you're not sure if you can afford to finance it or not on your budget. What do you do?

How Much Should I Spend On a New Car?

Financial Experts suggest that you should never spend more than 20% of your monthly wage on a new car - and this figure includes payments for any other cars that you may own already. So if you have a car with your partner that you pay for on HP or via a financing deal, then you need to include that figure in your workings out too.

To work out how much you can afford to pay monthly on a new vehicle, you should first know what sort of price you are looking at paying - so have a look at cars that you think are in your price range, find one that you like and compare prices on models of similar age and condition.

Once you have an idea of the purchase price you can figure out how much you would be able to put down as a deposit, and from that you can work out what interest rate you are likely to get (as a general rule the interest rate will be better the more money you pay as a down payment).

By getting your new total (purchase price minus deposit), you can then work out how much interest you will pay on that figure over the course of the loan and how much your monthly payments will work out to be. If you’re still a little confused there are lots of good loan calculators available on the Internet that will do all the working out for you.

Interest Rates

If interest rates are low then you will be able to get a better car for your budget than you will if interest rates are high. Use this extra leeway to work out whether you'd rather have a newer or better performing car, perhaps more luxurious extras - or whether you'd prefer to drop the amount you want to spend a little and put the rest towards something else.

Maintenance

Maintenance costs are something that lots of people completely forget to factor in when they buy a new or 'new to you' car. Just because you're buying a new car doesn't mean that it won't break down - and if you're buying a nearly new or second hand car then you may find that you spend out a lot more in the first few years of ownership than you had hoped. When choosing a car, especially a brand new or nearly new car, it's a good idea to look at different car manufacturers and see what kind of warranties they offer. Sometimes you'll find that paying a little extra for the car can be beneficial if it means that you don't have to fork out a fortune to get it looked at and fixed if something goes wrong.

Fuel and Tax costs

Fuel is always a big factor in vehicle running costs, and lately the price of oil has soared, taking petrol prices up with it. Vehicle Excise Duty or Car Tax is now worked out on Co2 emissions, rather than engine size, so make sure that you check what category your car comes into - as from 2010 some of the largest vehicles will cost nearly £1000 in Car Tax for the first year that they are on the road. It can be worth considering a smaller engine car with lower Co2 emissions because not only will you save money on your car tax but you'll save money on your fuel costs too.

Insurance

Depending on a number of factors including your age, how long you've had your licence, your driving and accident history, where you live and the type of car you drive, your insurance costs can vary immensely. Factoring this in and checking the Insurance group rating of any car that you are interested in buying before you sign on the dotted line can save you a fortune in unexpected insurance costs.

The most important thing to do before settling on a budget is to sit down and work out how all the different factors mentioned above will affect you and the choice of car that you make. If you’re not sure whether you can afford the car you really want, then look at other, cheaper options and take the safer option – remember that if you can’t keep up your repayments then you are likely to lose the car in the long run.

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