If you are thinking of buying a new or second-hand car, but you don’t currently have enough money saved up to do so, you may be considering car finance.
To put it simply, when you buy a car ‘on finance’, you are basically buying a car using a loan. This means that you will be taking on debt, which must be repaid.
Right now, though, the downturn means many people are struggling with their debts, so it’s particularly important that before you take out a car finance agreement (or any form of credit), you are certain you’ll be able to repay it. If you are unsure about this, or would like more information about debt, you could contact a debt management company and ask for some advice.
Entering a car finance agreement
You may be asked if you would like to enter a car finance agreement when you are buying your car. And if you need to borrow money in order to afford your car, you may well say yes.
Affording your monthly repayments
If you do enter a car finance agreement, you have to be certain that you’ll be able to afford your monthly repayments – after all, you would be taking on debt!
But the question is… how can you be sure that you will be able to afford your payments?
Well, no-one can guarantee that their circumstances will stay the same forever – but there are some steps you can take to help make sure you have enough money set aside for your car finance payments each month. For example, you could create your own budget.
Create a budget
Creating your own budget can be an effective way to make sure you have enough money set aside each month for your debt repayments.
To create your own budget, simply total up everything you earn each month, followed by everything you spend each month (on your essential costs – such as mortgage/rent payments, utility bills, food, etc.). Now you have these two totals, you will need to subtract your expenditure from your income.
This will leave you with your disposable income. Your disposable income is basically the money you have each month to put towards your unsecured debts (such as credit cards, car finance payments, overdrafts, etc.) – and if there is any left after doing this, for saving and/or non-essential spending.
To make sure you have enough money each month to cover your car finance payments (and any other unsecured debts you have, of course), simply compare your disposable income against the amount you are required to pay towards your debts.
If you have enough, you should be fine. However if your disposable income falls short of the amount you require, you should take immediate action. Seeking advice from a professional debt management company could be a good place to start.
