How to use car loan calculators to work out what you can afford

Budgeting for a car

For most people, their car is the first large purchase they make in their lives.  It is often the second largest purchase in a lifetime, second only to a home.  So saving for it may seem daunting or even unattainable.

There are several ways to fund a car.  You can save for months or years until you can purchase for cash, or you can seek finance, such as a car loan or lease.  Either way, having a budget will help you control your money.  Doing some simple calculations using a car loan calculator now will help ensure your new car fits affordably into your lifestyle.

If you decide to save up, grab a pen, paper and calculator, or a spreadsheet!  You will need to note your income less all of your expenses.  Then allocate all or a proportion of the difference to saving for your car.  Of course this means that you will still need to take the bus!
If you’d rather be driving your new car sooner, car finance is the answer, but this doesn’t let you off the budget hook.  The budget process starts much the same way.  First, work out the difference between your monthly income and expenses.  In this case though, you should include all the costs of running the car such as registration, insurance, fuel and servicing.  This gives you some indication of how much you can afford to pay back per month.  We call this your “disposable income”.

At this point you can use a car loan calculator to work out how much you can spend.  A car loan calculator is most frequently used to calculate monthly or weekly repayments on a given loan amount, but a car loan calculator can also be used to work out how much you can afford to spend on a car.

Start with the approximate price of the car you have in mind.  For example, a quality secondhand small car might be between $15,000 and $20,000 including on-road costs.  (If you have a cash deposit of, say, $4000, take that off the purchase price before you start.  So now your hypothetical car loan range is between $11,000 and $16,000.) Enter one of these figures into the car loan calculator.  It will calculate the monthly payment.  Now it is simply a matter of revising the purchase price until the monthly payment fits comfortably into your disposable income.
The car loan calculator can help you trim repayments using the term of the loan.  Simply vary the loan duration in the car loan calculator to help make a particular amount fit your budget. 
Once you have worked out what you can afford, you will be able to search for the right make and model car for you.  For absolutely no charge, 360 Financial can help you find a car that fits your budget.  About now, you should also apply for a car loan.  360 Financial can source a finance solution that suits your needs, also for no cost to you!  It’s all about getting you driving sooner.

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