How to afford a used car instalment

Many people  look at buying a car as an investment that won’t only make their  lives easier but one that they  will cherish for years to come. So, when looking at buying a car, careful thought and consideration should be taken to ensure that you are indeed getting an investment and not investing in a money pit, especially when buying second-hand.

When buying a used car, make sure you are buying from a reputable dealer and that you are given a copy of the car’s history so that you can feel at ease knowing exactly what you are investing in. Although you may want to buy a new car, seeing the prices will quickly change your mind when you start calculating your monthly expenses. A used car, on the other hand, is not only cheaper to buy, but your insurance premiums, on average, will be lower as well. This all adds up to savings that could mean the difference between buying a car and not being able to afford one.

When making such a big decision, it’s important to do your research beforehand to ensure you are investing in the right car for you and not just being sold on the first car you see. After your research, you will be able to tell which cars are in your price range and which would need a little bit more saving for. You will also come across a few payment options that could work for you.

Below are the top two payment options when buying a used car.

What are your car finance options?

When it comes to vehicle financing, there are a few optional routes to take in order to drive off with your dream car. From instalment finance to balloon payments, below are  the differences between the two care finance options.

Should you consider a balloon payment?

If you don’t have much disposable income to play with, then you may consider  a balloon payment on your car. This payment option entails having a substantial sum of money paid at the end of the loan period to reduce the initial instalment costs. So, it may seem like a good option initially, but it is just a different way of spreading the cost so that you may buy a car that is either a little out of your price range or one that you can’t comfortably afford. A balloon payment option is only available for shorter-term loans and is the best payment option for those with a good amount of savings and those who are secure in their income stream. This is due to the fact that you will be paying more for your car over the years, and without a steady income, you could fall victim to late payments without a backup savings account.

Instalment finance (hire purchase)

An instalment payment is the most straightforward type of car financing option. Repayment period options for instalment financing typically range from 12 to 72 months or 1 to 6 years, depending on the option you, and your budget, choose. The shorter the loan period, the higher the monthly repayments will be, as you have less time to pay back the full amount. On the other hand, the longer the instalment period is, the more interest you will pay on the amount you borrowed. Both repayment period options, short and long, have pros and cons, but it is up to you and your finances to decide which option is best for you.

Now that you have a better understanding of vehicle financing and the options available to you, you can make a better-informed decision as to which is the best one for you. There are other means of payment options, but the two above are the most utilised.

Factors to take into consideration when looking to buy a car

Although your payment options and budget  play a major role in deciding what car you will drive off in, there are a few other considerations at play. Take a look at them below;

Do a budget analysis

The most important consideration that needs to be made is, of course, your budget. There’s no point in finding your dream car and getting attached to it before you have done a thorough budget analysis. This is due to the fact that most people shop beyond their means,  and there’s nothing worse than setting your sights on a car that, at first glance, you think you’ll be able to afford, but on further investigation, it turns out you can’t afford it after all. By setting your budget early, you will prevent future heartbreak and save your time, as you will know exactly which cars are in your price range and can filter out all the ones that aren’t.

A general rule of thumb is to not to spend more than 30% of your available monthly budget on paying off your car, as you don’t want to add an additional debt burden that will only mount over time. Take this into consideration, draw up a monthly budget that details all of your current expenses and then see how much money you have left in your budget to spend on your car. Doing this will give you an idea of how much disposable income you have to work with.

Research vehicle financing options

The next big question is, do you qualify for a loan? In this step of consideration, it’s time to find out more about the set of requirements needed in order to qualify for financial assistance.

Calculate the repayment you can afford

Once you’ve gathered information on payment methods and have an idea of your monthly budget available, the next thing to do is calculate the repayment amount that you can afford. You can use a car instalment affordability calculator to get an estimate, and from there, you can make an informed decision.

Beware of the hidden fees

There’s more to buying a car than just the initial payment and monthly loan payments. You will need to factor in the cost of insurance, running costs, including a maintenance plan, and the cost of fuel. Make sure you have included all these expenses when working out your budget.

Final words

When shopping around for a new car, whether off the showroom floor new or second-hand  it’s important to be realistic about what you can afford. Start by knowing how much disposable income you have to work with so that you can make well-informed decisions that you will not regret a few years down the line. Shop for secondhand cars to pay off monthly and feel better equipped to make the right decisio