The combination of hard work and patience can get you through the car budget. Whether you are looking to buy a new one or a second-hand car, creating a budget for your car’s own payment is undoubtedly backbreaking.
Regardless of the financing option, you are supposed to arrange 10% of the market value of your car as a down payment. Though it seems very easy, it may take planning and dedication to achieve your goal. Saving for your car may seem very overwhelming, but it does not need to be impossible.
How to budget to buy a car
As long as you follow the right way to make a budget for your buying car, you can easily achieve your goal. Here are the tips for making a budget for buying a car:
Find out how much you can borrow
A rule of thumb says that you should have at least 10% of the value of a car as a down payment. Most of the people start stashing away based on the estimated market value they can afford to pay. It is crucial to note that you will have to pay interest on top of the principal when you borrow money to buy your car.
A lender will determine your affordability to ensure you do not fall behind the repayment. It is likely that you stash away only 10% of the value of your car, but how do you know that your lender will be able to approve your loan application of borrowing 90% of the value of your car?
Before starting setting money as a down payment for the car, the first thing is you should know how much you can afford to borrow. A lender will rebuff your application if you cannot prove your repaying capacity. Before taking the plunge, you should know how much lenders can lend you.
Try to get a pre-approval letter. A lender will hand it to you based on your current financial situation and credit score. It will consist of information related to their lending capacity and the interest rate charged on the loan amount. Knowing this, you can quickly see how much you will need to deposit as a down payment.
It is likely that your lender will not be able to lend more than 80% of the market value of a car. In this situation, you will need to have a 20% deposit. This is why it is suggested that you have an idea of your borrowing capacity before deciding how much you actually need to borrow. Although you can apply for guaranteed car finance in the UK, you must prove your affordability to get approval.
Start stashing away money now
Once you have got to know how much your lender can lend you, you will likely know how much you are to save as a down payment for your car. You should start as immediately as you can because it can take a longer time than you expected.
Ensure your current budget allows you to save money. Spread the total amount of the down payment over some time so you know how much amount to be salted away every month. You may need to slash your spending to achieve your goal.
Your budget must have room for putting by that amount of money. If it does not, determine where you can spend money. There is no point in wasting time. The longer you take time to put by, the longer you will take to own your car.
Inflation is another subject that pulls you from reaching your financial goals. For instance, if you take too much time to save money, rising prices may pull you back from achieving your financial goals. You will keep going as long as you are salting away money for the down payment. You should see how you can cut back on your budget. The money you save on your discretionary expenses can be utilised as the down payment for your car.
Have ample time for your car
Undoubtedly, you will need an inordinate amount of time to save for your car. Even if you do not believe it, you can take at least two years to arrange a deposit for your car.
For instance, if you want to buy a car two or three years later, you should start saving money right away; do not wait for the next year to get into action. Cutting back on your expenses and tracking each dime can be very stressful.
If you do not set the proper timeline, your stress will mount up, and you may stop making an effort. It is suggested not to take on unnecessary stress by setting an unrealistic timeline. Gove yourself enough time to save money for your car.
You will have to carefully plan around the car you want to buy and your current income. Even if you live off a lean budget, you may take a longer time to put by for your car. This is because of the pricing of the model you want to buy. For instance, a secondhand car is cheaper than a new car, so it does not take a long time to arrange down payment.
Restrict your access to funds
When you are saving money for your car, you should try to have a separate account so you do not have easy access to funds. In the period of two or three years, you may have financial emergencies. It is suggested not to dip into these funds.
Instead, you should have emergency cash. If an emergency cushion is not enough to meet unexpected expenses, you can take out quick loans in the UK. However, it is imperative to check your affordability.
If you borrow money, you will have to pay off the debt in a lump sum. Your budget must have scope for repaying the debt without compromising other expenses, including popping money into savings account for your car’s down payment.
At the same time, when you buy your car, you do not need to be tempted to spend on extra features. To make your car lavish, you can be tempted to use multiple features. They can add up the cost, and if you are funding it with an auto loan, the cost will quickly become double or triple because of interest. Note that this will either reduce the size of your down payment or increase the loan value. Additional accessories can cost you more than the actual price.
Budgeting cannot end after buying a car
You have bought a car successfully so that you can think now you do not need to invest time and energy in budgeting, but you are absolutely wrong. Now you are to make monthly payments toward your car debt. You will have to be very careful about it because otherwise, you may lose your car.
Now your budget will be revised according to the monthly payments of your car debt. Further, you will also need to stash away money for repair and maintenance. Wear and tear can continue to increase the maintenance cost. Having a separate budget for maintenance expenses will keep you relieved.
If you are looking to make a budget for buying a car, you should bear the aforementioned tips in mind. Remember that it can take a bit long time, so try to do it as soon as possible. The sooner you do it, the better it is.