6 Ways you will be able to afford a car
Unless you’re lucky enough to inherit a car or have one bought for you, you’re going to need a financing plan to buy one for yourself.
And the earlier you start preparing yourself for this expense, the more affordable it will be for you.
But, if you earn a salary and have some credit to your name, you will be able to afford a car one way or the other.
Luckily there are different ways to go about buying a car. It is an achievable reality and here are some ways you can go about doing it.
Pay with cash
The earlier you start saving, the better your chances are of being able to buy a car with cash. That means no interest, no loan applications and a relatively painless sales agreement. When you pay upfront with cash, the car is yours as soon as you drive away with it. The only monthly payment you’ll need to budget for is for your car insurance.
Unfortunately, saving enough money may take you years and if you’re only starting to think about buying a car now, you’re not going to own one anytime soon. Not to mention that life tends to throw curveballs that force us to dip into our savings and cover those costs. So, for that reason, this isn’t a viable option for most people.
Take out a loan
The other car finance option is to take out a loan. You can use a personal loan, a car loan, a credit union loan, a subprime loan or car loans from the dealership itself. What you’re looking for is a loan that can provide you with the amount you need for the vehicle you want at the lowest interest rate possible.
As soon as interest is in the picture, you’re increasing the overall cost of the vehicle you’re buying, which is why a low-interest rate is favourable. And the interest rate of your loan will depend on your credit history and credit score. Lender institutions want to know that you can afford the monthly instalments and are responsible for paying your debts.
But the loan breaks up the payment of the car into monthly increments that are more affordable than a once-off payment. You’ll need to use a car loan calculator to figure out how much you’ll be paying every month for your car and deciding whether it’s an amount you can afford to pay or not. The way this is calculated is by taking the total amount of the loan, subtracting any down payment, adding a monthly interest rate and dividing that total over the repayment term (which is generally set at 60 months).
Cosigner agreement
If you’ve applied for a loan and were denied due to bad credit, you could always bring on a cosigner to your application. This individual needs to be someone you trust (relative or close friend), with a stable and sufficient income, and a great credit to which your loan’s interest rate will be set against.
The downside to a cosigner agreement, however, is that their credit score and history will be negatively affected by any missed payments or disputes towards your loan. You are still responsible for the loan payments and, at the end of the term, you will have full ownership of the vehicle. But if you fail to make a minimum or your monthly payment, the cosigner will be responsible to make up that money.
Trade-in or savings deposit
Another way to make buying a car more affordable when you take out a loan is to have at least 20 percent of the car’s cost as a down payment. You don’t need to be paying for your car in cash to have to save up for it. A down payment of 20 percent or more will take a dent out of the total amount and you’ll be saving yourself from having to pay interest for that deposit.
What helps make up this money during a car purchase is by trading in your current vehicle that’s worth gets deducted from the cost of your new car. Now, add money that you’ve saved to that and you’ll be able to pay off your car loan over a shorter period, at an affordable monthly instalment without paying too much extra in interest in total.
Choose a pre-owned car
As tempting as it may be to buy a brand new car, it’s not necessary. You can easily find new-range models in used car dealerships at a more affordable price and without the hidden “new car” costs. Find yourself a certified used car dealership and start and end your search for a car there.
Attend a car auction
Alternatively, you could also attend car auctions for pre-owned cars at an even more affordable price. Granted, there is a good chance that some of the cars will be in a questionable shape, but it is possible to find reliable and dream auction cars on show. You just need to know exactly what you’re looking for and stick to your bidding budget.